How a CFD trade works when it comes to fees and commissions
If you want to trade CFDs, it's important you understand exactly how a trade works.
What happens with your open CFD trades depends on whether you go long or short and what the underlying share price does.
Let's take a closer look…
The workings of a CFD trade depend on whether you go long or short
Whether you go long or short in a CFD
trade, you need to pay your stock broker a commission for entering and exiting the trade.
With CFDs, there’s a daily funding charge. What happens with you trade depends on the position you take.
If you decide to go long, you’ll pay the daily funding charge. If you go short, you’ll receive the daily funding charge.
Let’s take a quick run through a long CFD trade…
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Putting on a long CFD trade
Say you decide you want to buy CFDs on a company as you think its share price is going to rise.
If the share price hits your take profit target during the first day you have the trade open, you don’t have to pay a daily funding charge. You can exit your trade and you’ll pay another commission fee to your broker.
If you keep the position open overnight, or for a number of days, you’ll pay the daily funding charge.
The basis of the daily funding charge is the closing value of the shares you hold multiplied by the South African Futures Exchange Yield (SAFEY), plus a percentage. This is generally in the region of 2% to 2.5%.
This figure is divided by 365 to give the daily rate.
If you’re in a short trade, you receive this daily funding charge. The funding rate is less as your broker will minus its percentage off the SAFEY rate.
So there you have it. How a CFD trade works when it comes to fees and commissions.
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