Interest on CFD

[winsonlee]

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?

 

[Trembling Hand]

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.

 

[BentRod]

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.

 

[slackjaw]

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.

 

[Aussiest]

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.