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CFDs

Below are frequently asked questions relating to contracts for difference (CFDs). For other FAQ categories, please click on the appropriate FAQ category found in the left menu, or the links directly below.

Blue Index FAQs •  CFD FAQs  •  Equity Trading FAQs •  Risk FAQs  •  Miscellaneous FAQs

• Is there a minimum opening contract value?
  

• Is there maximum opening Contract Value?
  

• What markets can I trade on?

• What are the advantages of trading CFDs?

• How does Margin work?

• How is the margin requirement calculated?

• What is the difference between a deposit requirement and a margin requirement?

• Can anyone trade CFDs?

• What are the tax implications of trading CFDs?

• How long can I hold a CFD?

• What are the costs?

Is there a minimum opening contract value?

In principle there is no minimum opening contract value and you can execute trades at any level, although in practice in order to get the most out of the leverage effect that CFDs provide the normal smallest contract value for CFDs is around £10,000.

Is there maximum opening Contract Value?

Only the cash in your account available to meet the Margin requirement and the ability of the broker to deal in the underlying shares limits the maximum Contract Value.

What markets can I trade on?

Blue Index provides trades on a huge variety of products from all major financial centres of the world, including stocks, indices, sectors, treasuries.

What are the advantages of trading CFDs?

The advantages of trading CFDs include the ability to go long and short, the ability to place long and short term trades, instant execution, leverage and tight spreads.

How does Margin work?

As a holder of a long or short CFD you do not pay the full underlying value of the contract. However, you are required to deposit margin as collateral known as initial margin. Initial margin is calculated as a percentage of the full contract value and the rate varies according to the market capitalisation and volatility of a particular share. For example if the initial margin is set at 10 % you can go long or short of a CFD worth £100,000 and deposit just £10,000, gaining ten times leverage.

How is the margin requirement calculated?

Simply multiply the price by the amount of your stake. Multiply this by the initial margin and this is the amount of margin required to hold your position. The margin requirement for single stock trades is calculated on a percentage basis of the notional value of the position. On Stocks the margin requirement is no more than 10% of the value of your trade, most commonly 5%.

What is the difference between a deposit requirement and a margin requirement?

A deposit requirement and a margin requirement is essentially the same thing - the amount of equity you need to open or hold a position.

Can anyone trade CFDs?

CFDs are only suitable for investors with sufficient experience and knowledge. Experienced investors will be registered as intermediate customers under FSA classification. As an intermediate customer you waive the protections provided for private customers and you must sign and send Blue Index a copy of the intermediate customer notice which Blue Index will send you.

What are the tax implications of trading CFDs?

Whilst they are exempt from stamp duty, any profits on CFDs may be subject to CGT (Capital Gains Tax) but losses may also be offset against CGT.

How long can I hold a CFD?

There are no expiry dates on CFDs, as a result you can run a position, long or short, for as long as required.

What are the costs?

Commission

Commission is charged on for either side of the contract, as a percentage of the total contract value. There are no hidden costs and you deal at the market price as we do not widen the spread of the share. Blue Index is committed to offering a competitive commission rate which includes all the advice and monitoring you require.

Financing

Clients pay interest on the contract value of a long CFD. Interest is charged at a percentage over LIBOR (LIBOR is the London Interbank Offered Rate and is linked to base interest rates).

Clients holding short CFD contracts receive interest on the cash that the sale of the underlying stock would have generated. This is similarly paid at an agreed rate under LIBID (London Interbank Bid Rate).

For example, If a client was paying a long CFD funding charge of perhaps 2 % over LIBOR and if LIBOR was 4 %, the client would be paying a funding rate of 6 % per annum. If the total contract value was £100,000 the funding charge would be around £16 for every day the contract was maintained (£6,000 divided by 365). This amount would be debited daily from your CFD account. The funding charge is only incurred if the position is held overnight. These amounts will be credited or debited on the next trading day.