CFDs are traded on a margin, meaning that rather than paying the full value of your position, as you would in conventional share trading, you just pay an initial deposit. This varies from broker to broker, but usually ranges from 1-10% of the value of your position.

Margin allows leverage, meaning you can access a larger position with your capital than you could without leverage. Because CFDs are traded on a margin, positions held overnight are subject to interest charges – long positions are charged interest if they are held overnight, and short positions may be credited interest. The interest is calculated daily by applying the CFD provider’s interest rate to the daily closing value of the position.

When going short on CFDs, traders are generally credited the daily interest charge rather than being debited.

The equation for determining the daily interest rate is calculated by subtracting the margin from LIBOR, and multiplying this by the number of days in the year. As the amount of interest received is negative, this means you will still be paying interest on your position, even though you are going short. So, if you were trading a market in a country with a higher interest rate, you may receive interest.

Are you interested in finding out more about CFDs? You will find many CFD trading tools by searching for information on the Internet. What’s more, you will get free access to trading tools and the ability to trial the CFD trading platform through a free demo account.

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