Interest on CFD - Aussie Stock Forums

# Thread: Interest on CFD

1. ## Interest on CFD

Stock Purchase Price \$20.00
Stock Purchase Qty 10
Total Price \$200,000
With 5% Margin, i'll need to pay \$10,000

1) Interest is calculated base on the total price ?

2) There is a place that i am reading mentioning that the interest is calculated base on the daily close price. Is this true ? So if the share went up to \$30.00, that means interest is calculated base on \$300,000 ? By using 4% interest calculated daily, that means with \$200,000 i will be paying ((200,000 * 0.04)/365) \$21.91 daily interest. IF the share goes up to \$30.00, I will be paying \$32.87 daily interest?

2. ## Re: Interest on CFD

Yep. they are a magnificent trading instrument. Just not for the trader but for the provider.

Except \$20 X 10 = \$200 not \$200,000 I guess you meant 10,000 shares.

3. ## Re: Interest on CFD

Yep. they are a magnificent trading instrument. Just not for the trader but for the provider.
Spot on TH.
Took me a while but I finally saw the light!

Good for shorts though.

4. ## Re: Interest on CFD

Its actually not really expensive by comparison, anywhere you use margin lending you will pay interest, whether you use cfd or a margin loan. Commsec interest rates on margin loan is 10.25%. By simple comparison the cfd provider I use charges 2% above the RBA rate so it is 9.25%

Allowing though, that a margin loan only charges you interest on what you dont have, whereas for a cfd, where you supply 5% (in general) on which you are also being charged interest, the effective interest rate of what you are borrowing is

9.25 / 0.95 = 9.74%

... which is still cheaper than the commsec rate, plus you have the advantage of going short, which also earns you interest (at a lesser rate though RBA - 2%) so you can offset much of the interest charged.

At the current rate then if you have 63.8% of your positions on shorts and 36.2% on longs, earned interest will cancel interest charged so you wont pay any at all.

5. ## Re: Interest on CFD

Originally Posted by winsonlee
Stock Purchase Price \$20.00
Stock Purchase Qty 10
Total Price \$200,000
With 5% Margin, i'll need to pay \$10,000
Yep, but don't forget, if the position goes against you, you need to have enough funds in your account to cover the difference. If it goes down by \$1.00, that means you'll have to have an extra \$10,000 in your account to be 'marked to market' if you went 10,000 long.

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