About CFDs & Spreadbets

Product Description - CFD

A CFD is a virtual investment-on-margin; it is a 'Contract For Differences' between iDealing and its customer, to simulate the cash flows that an investor would receive or pay if they were buying or selling an actual financial security.

Equity CFDs

There are three primary cash flows related to an equity investment: The Difference between the purchase and sell price, the Dividend (if any) paid while the investment is held, and the Interest on the cash required to pay for the stock. The CFD contractually passes these cash flows to or from the client. Consider the following example:

Example 1: Buying Vodafone CFD

It's January 28, 2015. You decide Vodafone (CFDVOD) is a good buy. The share is quoted at 163.75/164.00 pence per share, and you decide to 'buy' 10,000 shares as a CFD at 164 pence, the offer price. There is no stamp tax to pay (more on this later). There is no actual purchase money required.

While your position remains open, your account is debited to reflect interest adjustments and credited to reflect any dividends.

Interest Adjustment

If you had purchased an actual share, you would have needed £16,400. As you do not actually spend money on the CFD, the firm effectively finances the virtual stock position for you. Because of this, the firm charges you interest on long positions.

In our example the interest rate might be 6.5%. The interest charge is calculated every day based on the closing value of the stock. If the stock price has closed at 170 pence, the interest charge for that day would be £3.03 (10,000 shares * 6.50% * 170 pence / 365 days).

The Dividend Adjustment

It is now two weeks later and you still hold your long CFD position over Vodafone's ex-dividend date. Had you been holding a real share, this would have entitled you to the Vodafone dividend. The CFD passes a cash flow to you to replicate that value.

Assuming the gross dividend amount is 1.25 pence per share, the Dividend Adjustment is calculated as follows:

10,000 shares * 1.25 pence * 80% = £100.00

The Dividend Adjustment on dividends depends on whether you are long or short and also upon the relevant tax jurisdiction.

The Price Adjustment

This cash flow occurs when your CFD position is closed out. Lets assume that at the end of February, Vodafone has reached 192/192.25 pence per share, and you decide to take profit. You 'sell' your position to us at 192 (the bid). Your profit on the trade is calculated as:

  • 192
  • 164
  • 28
  • 28 pence * 10,000 = £2,800.00

The Overall Result

Calculate the overall profit on the transaction as follows, approximating the interest cost over one month at 6.50%:

  • £2,800.00
  • (£98.27)
  • £100.00
  • £2,801.73

Example 2: Selling Vodafone CFD, short term trade

Assume you decide instead that VOD is overpriced in the short term. The share is quoted at 163.75/164.00 pence per share, and you decide to 'sell' 10,000 shares as a CFD at 163.75 pence, the bid price.

The Price Adjustment

Let's assume you close out the position that day, because VOD has announced good earnings and its price has increased 1.25 pence per share since you sold it:

  • 165
  • 163.75
  • 1.25
  • -1.25 pence * 10,000 = -£125.00

In this case there would be no Dividend or Interest adjustments because you closed your position the same day it was opened and therefore will run no positions in this CFD overnight.

Product Description - Spread Bet

Financial Spread Bets are bets on the price of a Security or Financial Instrument. They can be bets on the Spot (current cash price), or the price as at some future Fixed Expiry Date. As they are classified as a Bet, they are free from Capital Gains Tax, as well as Stamp Duty. They, like CFD's, are leveraged instruments that may be utilised for going long or short.

Spread Bets vs CFDs

The primary consideration when considering CFD's vs Spread Bets is Tax.

Realised Gains from Spread Bets are not subject to Capital Gains Tax. An ancillary benefit then is that your tax returns are simpler - no representations are required. Realised Losses from Spread Bets are not deductible against other Capital Gains.

Like Rolling CFD's, Spread Bets incur adjustments for interest and, where applicable, Dividends and Corporate Actions. Please refer to our T's and C's for full details.

Rolling vs Fixed Expiry Spread Bets

Rolling CFDs and Rolling Spread Bets are subject to daily interest adjustments. Spread Bets with Fixed Expiries are not. Fixed Expiry Spread Bets are essentially a simple Derivative product called a Cash Settled Forward. Here's an example:

  • 100 pence
  • 101.5 pence

These have an estimated term financing rate built into the Price. In the example above, the SPB on ABC is more expensive than the Cash Price. This is because the estimated cost of funding on ABC for 3 months is 1.5 pence. Please note this example assumes that if any dividend entitlement occurs on ABC Stock while holding the SPB that this entitlement is passed to the SPB holder. The decision to utilise a Fixed Expiry Spread Bet is generally taken when the Investor expects to hold the position for longer than a few days and wishes to "Lock In" an implied term financing rate.

What types of Margin account does iDealing offer?

Two types of Margin accounts are available:

  1. Commission Free Account:
    No Commission
    Min Deal Size 5,000 GBP; 7,500 USD; 8,500 EUR
    House Prices
  2. Touch Account:
    Touch Prices - prices equal to or better than the underlying market
    For commissions applicable to a specific instrument, please see our Commission Schedule

Both accounts offer:

  • CFDs and Spread Bets on: UK equities, Index Tracking ETFs, and FX Rates
  • Same-day, high leverage CFDs and Spread Bets
  • Real-time prices
  • Advanced order entry (click here for more information).

Who can apply for a Margin account? How do I apply?

The eligibility for a Margin account is at our discretion, but we do require what we regard to be an appropriate level of experience. Because it is a credit account, and the client is classified as a Professional Client, we are required by the Financial Conduct Authority (FCA) and our credit group to collect different and additional information to qualify a client. The information is for credit assessment and suitability.

If the account is approved, you should receive an Account Activation e-mail on the date of approval, and you should then be able to login.

The minimum initial deposit is GBP 2,000.00.

Is there a list of shares and indices can be traded via iDealing's Margin account?

We currently offer CFDs and Spread Bets on the FTSE 100, and the more liquid constituents of the FTSE 250.

If you have an active iDealing account and wish to access a list, please go to the 'Security Search' page after logging in, select the relevant Instrument Type (e.g. CFD or Spread Bets), and click on 'Search'.

Can I deal in Spread Bets or CFDs through an ISA account?

No, it is not possible to deal on Margin through an ISA account, as restricted by the Inland Revenue.

Risk Warning - CFDs and Spread Bets

Warning: CFDs and Spreadbets are only for clients that we can, and do, classify as MiFID Professional Clients or Eligible Counterparties. CFDs and Spread Bets are leveraged products and while trading them you can lose more than your deposit held with us.