Interest

[Lisa]

What kind of interest charges are there on cfds?

[ahmed]

Interest is calculated and charged or credited daily, by taking the predetermined annual interest rate and dividing it by 365.

[millionarepopcorn]

To clarify, when you buy a cfd the broker is lending you money and will charge you interest. But if you go short on a cfd the broker will pay you interest.

[Lisa]

Thanks, Ahmed and millionarepopcorn (you know there's a spelling mistake in your username, right?)

One more question: where do dividend charges fit into all this?

[millionarepopcorn]

Yes, I did realize that at some point but I am used to it by now. So millionare without an i I will remain...

Dividend charges mirror what the actual stock is doing. So if you have a cfd during the dividend payment period, the broker will pay you a dividend.

[SJCFDs]

Interest is calculated and charged or credited daily, by taking the predetermined annual interest rate and dividing it by 365.

This is a minor difference, but just wanted to point out that some markets charge/credit interest on a daily basis using not the 365 days mentioned above but rather 360.

The difference in minimal but just be aware.

I think i'm correct in saying that the UK uses 365, the US uses 360. This due to the difference in the way the 2 countries calculate their theoretical "Fair Values" between the cash and futures.

[SJCFDs]

Also, its usually basis LIBOR (EURIBOR or FED RATE) +/- some predetermined % set individually by each broker.

If you are long, you will be charged (in the UK) LIBOR + certain %

If you are short you will be credited LIBOR - certain %