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Trade Stocks Using CFDs

One of the best ways to trade individual shares globally on margin is by using Contracts For Difference or CFDs. Trading a CFD is very similar to normal share dealing. You deal at the cash price of the share, and pay a commission which is calculated as a percentage of the value of the transaction. However, you do not have to pay for the full value of the shares. Instead you put up a deposit (or margin), which is normally between 10% and 25% of the underlying contract value depending on the type of share and the time zone where you are located.
While your position remains open, your account is debited or credited to reflect interest and dividend adjustments. The direction of interest and dividend adjustments depends on whether you use a CFD to create a long or a short position:

  • If you have a long position your account is debited to reflect interest adjustments and credited to reflect any dividends. The effect of these adjustments is to mirror the effect of buying shares in the normal way, where you no longer earn interest on the cost of the shares, but receive dividends instead.
  • If you have a short position your account is credited with interest adjustments and debited to reflect any dividends. These adjustments mirror the effect of selling shares, where you earn interest on the proceeds of the sale, but cease to receive dividends.

Your account is adjusted to reflect a dividend if you have an open CFD position in the relevant share on the ex-dividend date. In the case of both long and short positions you are credited or debited with the amount of the net dividend.

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