For the equity trader, stock markets have one key disadvantage: it is not easy to go short on shares. When you trade CFDs it is just as simple to go short as it is to go long.
Opening the position
You decide to open a short position on Singapore Airlines, on which the market price is 11.00/11.02. You go short on 1500 shares at $11.00, the bid price.
You supply a deposit of 10% or $1650 to open the trade. The commission on the trade is 0.1% (minimum $15 commission), so in this case it will be $16.50.
The market price falls throughout the day and you believe it will fall further tomorrow. You decide to hold your position overnight. At the end of the day, your account is adjusted to reflect interest and dividends.
Interest adjustments
Interest adjustments on short positions are calculated daily in relation to the latest one-month interbank offered rate of the currency in which you are dealing. They also incur a financing fee.
Unlike long positions, interest adjustments on a short position can appear on your account as either a debit or a credit, because the financing fee is subtracted from, rather than added to, the interbank offered rate when calculating interest adjustments.
Therefore, if you have a position on a Singapore dollar denominated share, and SIBOR is greater than your financing fee, the adjustment appears on your account as a credit; conversely, if SIBOR is less than your financing fee, the adjustment appears on your account as a debit.
On the transaction date, SIBOR is at 0.44%, which, assuming a financing fee of 2.5%, means that the adjustment will appear as a debit:
Adjustment
| SIBOR: | 0.44% per annum |
| Fee: | - 2.5% per annum |
| Total: | -2.06% per annum |
Your account is debited at an annual rate of 2.06%. The closing price on the day is 10.86, which gives your position a closing value of $16290. The annual interest adjustment on this value would be $335.57, which creates a daily debit of $0.92 ($16290 x -2.06% / 365).
Dividend Adjustments on Short Positions
When you hold a short position and the share goes ex-dividend, the dividend value is debited from your account. In this example there was no dividend, but if there had been, and the amount of the net dividend was $1 per share, $1500 would have been debited from your account (1500 shares x $1 = $1500). Overall, you do not lose in this situation as the market price of the share will also fall when dividends are paid out.
Calculating the gross profit
To calculate the overall profit on the transaction you also have to take account of the commission you have paid and the interest and dividend adjustments. In this example, as you only held the position for one day, you are debited a total of $0.92 interest.
The overall result of the trade is a profit, calculated as follows:
Gross profit on trade
| Opening level | $11.00 |
| Closing level | $10.61 |
| Difference | $0.39 |
Gross profit on trade: $0.39 x 1500 = $585
Calculating the overall result
To calculate the overall profit on the transaction you also have to take account of the commission you have paid and the interest and dividend adjustments. In this example, as you only held the position for one day, you are debited a total of $0.92 interest.
The overall result of the trade is a profit, calculated as follows:
Net profit
| Gross profit on trade | $585 |
| Commission | -$32.42 |
| Interest adjustment | -$0.92 |
| Dividend adjustment | N/A |
| Net profit | $551.66 |
Please note that trading CFDs carries a high level of risk to your capital. Please see our Risk Warning for more details.