CFD's FAQ's

Questions  and  Answers
 
 Q1. What is a Contract for Difference?
 A. A Contract for Difference is an agreement (made between two parties) to exchange, at the closing of the contract, the difference between the opening and closing prices, multiplied by the number of shares detailed in the contract.
 
 Q2. What is the Contract Value?
 A. Every CFD has a Contract Value. It is the number of shares in the contract multiplied by the price of the underlying share. The Contract Value will change in line with the changes in the price of the underlying share. A CFD is marked-to-market (i.e. valued) daily at the close of business mid-price of the underlying share.
 
 Q3. Do I have to pay the full Contract Value of a CFD?
 A. No, a CFD is a Margined Transaction.
 
 Q4. What is a Margined Transaction?
 A. A Margined Transaction is a transaction where the deposit of cash or other acceptable security (the Margin) is required to
 secure the performance of the obligations under the contract
 
 Q5. What Margin is required for a CFD?
 A. CFD's can be traded by providing Margin from 2%-10% of the Contract Value. For example, if you want to open a CFD with a Contract Value of $25,000 you will be required to deposit $2,500. (If you are trading in an overseas market or one that has a history of price volatility the Margin required may be higher). The margin required may fluctuate from day-to-day in line with changes in the close of business price of the underlying share.
 
 Q6. Can I buy or sell a CFD?
 A. Yes. You can buy (go long) a CFD and will make a profit if the value of the CFD increases.
 Conversely, if you sell (go short) a CFD you will make a profit if the value of the CFD decreases. The ease with which a short position can be established with a CFD is one of major attractions. It can be done without incurring the costs involved in dealing on a 'T+20' basis, i.e. there are no commission charged or Any taxes incurred in rolling positions forward. Consequently, CFD's provide an easy way to take advantage of a negative view on a share.
 
 Q7. Why and how frequently is interest charged or credited?
 A. When going long a CFD the economic aspects of a conventional share purchase are replicated. Accordingly, interest, calculated on a daily basis, on the Contract Value will arise.
On the other hand, with a short CFD position, a conventional share sale is simulated and interest, also calculated on a daily basis, will be earned.
 
Q8. What happens when a company pays a dividend?
A. WPP Inc. Is trading OTC CFD's and no dividend are payable in case there are payments. (Otherwise long positions are being credited and short ones are debited)
 
 Q9. Will I have to pay Any taxes when buying a CFD?
 No. As no purchase of the underlying shares is involved no Any taxes is payable.
 
 Q10. Will I have to pay commission?
 A. Commission is payable on the opening and closing of a CFD. Typically, the charge for each leg is 0.25% of the Contract Value. However, there are brokers that offer commission free dealing. They are able to make this offer by making their own, wider bid/offer spread around the price of the underlying stock or share.WPP Charges no commission on CFD trading.
 
 Q11. What Spread can I expect to see in the bid and offer prices?
 A. If commission is payable the CFD bid and offer prices should be the same or lie very close to the cash prices of the underlying share, as quoted in the relevant stock market.
 
 Q12. How often can I trade?
 A. Provide an account is sufficiently funded it is permissible trade as frequently as desired. Trading will normally only be possible during the hours that the relevant stock market is open.
 
 Q13. What is the minimum account-opening requirement?
 A. $2.000-$10.000 is generally the minimum amount required.
 
 Q14. What trading strategies are commonly adopted?
 
 Going long: - This is the simplest and most straightforward strategy. A long CFD will profit from an upward price movement in the underlying and has the benefit that no Any taxes is payable. There is no limit for the holding of a long position but, as explained below, there comes a point in time where a long CFD may become uneconomic.
 
 Going short: - Also a simple and straightforward strategy and one of the principal attractions of CFD trading. By entering into a short CFD position a profit will be seen if the price of the underlying falls. Such a position can be maintained indefinitely without the need or the associated costs of having to continually roll the position over. Additionally, short positions generate an interest income but dividends are paid gross.
 
 Hedging: - It is possible to offset an existing stock position so as to reduce market risk particularly in terms of a different time horizon to an underlying position. In other words, a trader may want to reduce exposure temporarily to a company but without effecting a sale of the physical holding.
 
 Pairs trading: - While reducing overall market risk it is possible to obtain the out-performance of one share versus another by going long a CFD while going short a CFD, with a matching Contract Value in a similar stock.
 
 Q15. Can I take or make delivery of a stock by trading a CFD?
 A. No. A CFD is a financial instrument linked to the underlying share price. You will not acquire any rights or incur any obligations relating to the underlying share.
 
 Q16. How does a CFD investment perform in comparison with a conventional share transaction?
 A. A CFD is designed to mirror the economic performance and cash flows of physical share trading.