Costs associated with CFD investment

[penninah]

Hi,

I have heard about the many advantages of CFDs and I want to make it my investment vehicle of choice. It looks all good but am wondering if there any costs involved in the investing process other than the initial deposit I have to pay.

Edited May 12, 2020 by penninah
Clarity

[Lindsay R]

Hi Penninah,

This is a good question because the cost of investing in CFDs is more than just the cost of your units. The costs involved differ from trade to trade and one broker to the other. This is because there is a huge variety of CFDs given they are available for every financial asset.

Below are the costs that come with trading CFDs.

• Spread

This is the variance between the buying and selling price or the difference between the ask and bid prices. Shop around when investing in CFDs to compare the spreads given by different brokers as they may quote you a wide spread to cover the forfeited commission fee. 

 

• Commission

The commission is charged on CFD shares only, and it is 0.1 % or a minimum of £9 per trade. As such, when you are trading indices, treasuries instruments, forex, commodities, and cryptocurrencies, you don’t pay commission. 

 

• Holding costs

If you hold long CFD positions overnight, you will be charged a daily interest. This is because that is treated as an investment whereby the broker lent you money to purchase it. The charge amount is agreed beforehand at a rate allied with the London Inter-Bank Offered Rate (LIBOR). Similarly, the charge could be based on another interest rate benchmark.