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?

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.

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

Click to expand...

Spot on TH.
Took me a while but I finally saw the light!

Good for shorts though.

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.

winsonlee said:

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

Click to expand...

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.