Shares Examples

Selling Vodafone

Opening the position

On the morning of 28 June 2011 you decide to open a position on Vodafone as you think their share price will fall. The stock is quoted at 163.6-163.7 in the market, and you sell 10,000 shares as a CFD at 163.6p, the bid price.

Being able to profit from a fall in the company’s share price, by selling shares without already owning the physical stock, is a key feature of trading CFDs. As a Trader account holder, instead of putting up the full value of the shares (163.6p x 10,000 = £16,360), you need to only supply a deposit of 5%, which is £818.00, to open your short position.*

Closing the position

Two days later, after an interview is published in the financial press with Vodafone's CEO, Vodafone rises to 166.6-166.7 in the market and you decide to cut your loss. You buy 10,000 shares at 166.7p, the offer price, to close.

Your loss on the trade is calculated as follows:

To calculate the overall result on the transaction you would also have to take into account the commission you have paid and the interest and dividend adjustments.

*This example is based on the Vodafone margin rate available to Trader account holders.

Detailed Example: Buying Vodafone

Opening the position

In the afternoon of 28 June 2011 you decide to open a position on Vodafone as you think their share price will rise. The stock is quoted at 161.7-161.8 in the market, and you buy 10,000 shares as a CFD at 161.8p, the offer price.

As a Trader account holder, instead of paying the full value of the shares (161.8p x 10,000 = £16,180), you need to only supply a deposit of 5%, which is £809. The commission on the trade is 0.10% or £16.18 (161.8p x 10,000 x 0.10%). There is no stamp duty to pay.*

The market price has been volatile throughout the day, but you believe it will rise tomorrow. You decide to hold your position overnight.

Interest adjustments

Interest adjustments are calculated daily, by applying the applicable interest rate to the daily closing value of the position. The annual interest adjustment for a long position is found by adding the current one-month LIBOR (London Interbank Offered Rate), in the currency the share is denominated in, to the financing fee.

The annual interest adjustment is then divided by 365 days for sterling-denominated shares, or 360 days for euro or US dollar-denominated shares, to give a daily rate. Funding will be charged for three days over a weekend.

On 28 June 2011, the one-month sterling LIBOR was at 0.63%, so the annual applicable interest rate on your Vodafone position, assuming a financing fee of 2.5%, would be 3.13%.

LIBOR: 0.63%
Fee: + 2.5%
Total: 3.13%

The closing bid price on 28 June 2011 is 161.7p, which gives you a closing value of £16,170. The annual interest on £16,170 would be £506.12, which creates a daily interest debit of £1.39 (£16,170 x 3.13% / 365).

Dividend adjustments

When you hold a long position and the share goes ex-dividend, the dividend value is credited to your account. In this example there was no dividend, but if there had been, and the amount of the net dividend was 7p per share, £700 would have been credited to your account (10,000 shares x 7p = £700).

Closing the position

Vodafone begins to rise the following day. By late afternoon on 29 June 2011, the market price is 165.8-165.9. You decide to close your position and take your profit before the market reverses. You sell 10,000 shares at 165.8p, the bid price. The commission on this transaction is 0.10% or £16.58 (10,000 shares x 165.8p x 0.10%).

Calculating the overall result

To calculate the overall profit on the transaction you also have to take account of the commission you have paid and the interest and dividend adjustments. In this example, as you only held the position for one day, you are debited a total of £1.39 interest.

The overall result of the trade is a profit, calculated as follows:

Overall profit

Profit on trade: £400
Sell commission: £16.58
Buy commission: £16.18
Interest adjustment: £1.39
Dividend adjustment: N/A

Overall profit: £365.85

Please note that trading CFDs carries a high level of risk to your capital. CFDs are a leveraged product and can result in losses that exceed your initial deposit. Please see our risk warning for more details.

*This example is based on the Vodafone margin rate available to Trader account holders.

Detailed Example: Selling Vodafone

Opening the position

On the morning of 28 June 2011 you decide to open a position on Vodafone as you think their share price will fall. The stock is quoted at 163.6-163.7 in the market, and you sell 10,000 shares as a CFD at 163.6p, the bid price.

Being able to profit from a fall in the company’s share price, by selling shares without already owning the physical stock, is a key feature of trading CFDs. As a Trader account holder, instead of putting up the full value of the shares (163.6p x 10,000 = £16,360), you need to only supply a deposit of 5%, which is £818.00, to open your short position.*

Commission on the trade is 0.10% or £16.36 (10,000 shares x 163.6p x 0.10%). There is no stamp duty to pay.

The market price falls throughout the day, but you believe it will fall further tomorrow. You decide to hold your position overnight. At the end of the day, your account is adjusted to reflect interest and dividends.

Interest adjustments

Interest adjustments are calculated daily, by applying the applicable interest rate to the daily closing value of the position. The annual interest adjustment for a short position is found by subtracting the current one-month LIBOR (London Interbank Offered Rate), in the currency the share is denominated in, from the financing fee.

The annual interest adjustment is then divided by 365 days for sterling-denominated shares, or 360 days for euro or US dollar-denominated shares, to give a daily rate. Funding adjustments will be posted for three days over a weekend.

Unlike long positions, interest adjustments on a short position can appear on your account as either a debit or a credit, because the financing fee is subtracted from, rather than added to, the interbank offered rate when calculating the adjustment. With interest rates at historic lows, it means that this sterling trade incurs a debit charge.

On 28 June 2011, the one-month sterling LIBOR is 0.63%, which, assuming a financing fee of 2.5%, means that the adjustment will appear as a debit:

LIBOR: 0.63%
Fee: -2.5%
Total: -1.87%

The closing offer price on 28 June 2011 is 161.8p, which gives you a closing value of £16,180. The annual interest adjustment on £16,180 would be £302.38, which creates a daily interest debit of £0.83 (£16,170 x 1.87% / 365).

Dividend adjustments

When you hold a short position and the share goes ex-dividend, the dividend value is debited from your account. In this example there was no dividend, but if there had been, and the amount of the gross dividend was 7.75p per share, £775 would have been debited from your account (10,000 shares x 7.75p = £775). Overall, you do not lose in this situation as the market price of the share will also fall when dividends are paid out.

Closing the position

Your prediction does not turn out, and by late afternoon on 29 June 2011, the market price for Vodafone is 165.8-165.9. You decide to close your position and cut your losses before the market moves further. You buy 10,000 shares at 165.9p, the offer price. The commission on this transaction is 0.10% or £16.59 (10,000 shares x 165.9p x 0.10%).

Your loss on the trade is calculated as follows:

Calculating the overall result

To calculate the overall loss on the transaction you also have to take account of the commission you have paid and the interest and dividend adjustments. In this example, as you only held the position for one day, you are debited a total of 83p interest.

The overall result of the trade is a loss, calculated as follows:

Overall Loss

Loss on trade: £230
'Sell' commission: £16.36
'Buy' commission: £16.59
Interest adjustment: 0.83p
Dividend adjustment: N/A

Overall loss: £263.78

Please note that trading CFDs carries a high level of risk to your capital. CFDs are a leveraged product and can result in losses that exceed your initial deposit. Please see our risk warning for more details.

*This example is based on the Vodafone margin rate available to Trader account holders.