CFD Finance is relatively easy to understand, if you understand the entire CFD trading process. When you buy a contract for a difference, you are only required to provide a small margin. This margin requirement is required to cover the losses you can do in the position and change from day to day as a value of changes in the underlying position. The small margin you pay does not cover the underlying instrument fee. To hedge your position, the broker will buy the underlying part when you enter the position and do this must face upward at the full purchase price. As a result, the broker lends you cash when you hold an open position.
When you buy CFD, the broker will charge you interested in money. The interest rate is applied to the nominal value of the position, i.e. The current number of times the price. So, if you buy 1000 BHP contracts at $ 33, then you will be asked to pay interest of $ 33,000. This is how CFD financing while trading old.
On the other hand coins if you sell short CFD, you effectively receive cash for sales. Even though it doesn’t end up in your bank account, it ends up in a bank account broker if they sell the underlying stock. So selling 1000 CBA contracts at $ 33 will mean that you will receive an interest of $ 33,000. This is how CFD Finance works while trading short.
How much does it cost?
Interest rates vary from providers to providers but are usually based on the following formulas. Reference level interest plus margin 2-3% for buy position and less interest rate of interest margins 2-3% during short trade. The reference rate used is usually the reserve rate of the Bank of Australia (RBA) or the London Interbank Offer rate (LIBOR). Therefore the broker makes money on the flower margin they take on each position. This is how CFD Finance works for them and CFD can be considered a sophisticated way to lend money.
What is the CFD financial costs calculated?
The interest cost is calculated every day and does not apply to the position opened and closed on the same day. Therefore intraday trade is released from interest, while the trade held overnight will be charged. CFD Finance does not apply to intraday positions. When CFD trade impacts minimum financial costs because interest rates currently around 6% per year while CFD positions can easily fluctuate 6% in a day.