Index Trading with CFD's.

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davkell

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Post Number: 398
Registered: 07-2004

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Sunday, April 09, 2006 - 10:43 pm:

Am curious on a few factors if one was to trade indices with CFD's. Can anyone explain please the following:

1) Do you receive some kind of reimbursement/payment for dividends paid within the index and if so, how is this done?

2) When buying the index, I believe 1 CFD is equal to the $dollar value of the index, example: 1 XAO CFD would equate to $5186. Of this a 1% margin payment of $51.86 would be payable. Is this correct? And also, does that mean the interest charge would be on $5186?

Hope someone can shed some light on these issues, as I've been unable to find the answers anywhere on the net.

Thanks.

"Trade Your Way To Financial Freedom" - Van K Tharp

"Manage the downside; the upside will take care of itself" - Donald Trump

ingot54

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Post Number: 1302
Registered: 05-2004

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Votes: 0


Monday, April 10, 2006 - 04:11 am:

Davkell

IGMarkets have a couple of worked examples on their site here.

They also offer $5 mini contracts as well as the $25 contracts. Index last traded at 5188, out of interest.

EDIT: You do not pay commission on the position, but you do receive dividends as components of the index go Ex-Dividend.

The CFD provider makes money on the spread - either 4 points or 8 points, depending on the time you trade the market. In the after-hours market, the spread is larger.

I paraphrase a copy/paste from their site:

1) Spreads are subject to variation, especially in volatile market conditions. Wider spreads apply when stock indices are quoted outside normal market hours.In-hours spreads apply during the following times:

Australian Stock Index: 09.50-16.30 (Sydney time).

2) For Limited Risk transactions, all the spread and the Limited Risk premium are charged on the opening. Transactions are closed at the market level.

3) The minimum transaction size is one contract.

4) 24-hour dealing starts at 23.30 London time on Sunday and finishes at 21.15 London time on the following Friday. Please contact us for specific information about public holidays.

5) N/A

6) Limited Risk positions on stock indices are closed if the middle of our quotation reaches the selected stop level. There may be nothing against which to measure our quotation, particularly at times when the underlying market is closed.

Our quotations, especially at such times, reflect our own view of the prospects for a market. Furthermore, business done by other clients may itself affect our quotations. If a price reaches one client's Limited Risk stop level, so that, for example, he sells to close a position, that sale may itself push our quotation down to a level at which another client's Limited Risk position has to be closed.

7) For CFDs on stock indices, adjustments to reflect the effect of interest and dividends are calculated daily and posted to the client's account weekly, or (on request) more frequently.

i) Interest adjustments are calculated as follows:

D = n x L x C x i / 360

Where:

D = daily interest adjustment
n = number of lots
L = lot size
C = current index price
i = applicable annual interest rate

The applicable interest rate will be +/-2.5% above/below the indicator cash rate for that index unless otherwise agreed in writing.

Note: The formula uses a 365-day divisor for UK indices and a 360-day divisor for non-UK indices.

Interest in respect of long positions is debited from a client's account and interest in respect of short positions is credited to a client's account at rates which are agreed with each client.

ii) A dividend adjustment is applied when a component share passes its ex-dividend date (including the ex-date of any special dividend) in the underlying stock market. In the case of long positions, the dividend adjustment is credited to the client's account. In the case of short positions, the dividend adjustment is debited from the client's account.

8)N/A

9) We do not quote the Australian Stock Index between 08.00 and 09.50 and between 16.30 and 17.10 (Sydney time).

10) N/A

HTH

(Message edited by ingot54 on April 10, 2006)

Keep Smiling

Trading style :CFD's predominantly. Looking for ways to enter CFD trading over long term.

davkell

Member

Post Number: 399
Registered: 07-2004

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Votes: 0


Monday, April 10, 2006 - 11:00 am:

Thanks Ingot. A little confusing but I think I get the gist of it! Seems a little different to CMC's index trading though. But CMC don't offer a great deal of info about it on their website.

I'll further digest what you've posted. Thanks again.

"Trade Your Way To Financial Freedom" - Van K Tharp

"Manage the downside; the upside will take care of itself" - Donald Trump

fibonacci

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Post Number: 135
Registered: 10-2003

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Votes: 0


Monday, April 10, 2006 - 11:29 am:

Davkell,
Just call them. They readily answer questions in detail, providing you know what to ask, I suppose.

AUSSIE200 SPREAD DURING DAY IS ONLY 2 PIPS.

Interest and dividend adjustments only apply when held overnight which is at 0000GMT.

John

You've got to
know when to hold 'em
know when to fold 'em.