Tuesday, November 13, 2018

CFD Experiment - Dividends Credited and Cost of Financing

Following my experiment using CFD account to purchase shares which I blogged here a few months ago, I have finally received my first dividend payout credited to my account.

Although rather straightforward, but they operate somewhat a little differently from holding a normal ordinary shares account hence I wanted to document this for future users.

For those who've read my past articles, you would have known that I have opened up an account with Cityindex and have tried to experiment leveraging through a series of different level financing.

Being conservative since this is my first few encounters with leveraging instrument, I have only leveraged up to 1x which means for whatever position I have opened, I have half purchased it using cash and the other half using borrowing.

The cost of financing is estimated to be at about 3.2% per annum, though computed daily.

I currently hold open positions in Netlink Trust and CapitaretailChina Trust.

You can see that the cost of financing is computed daily, and I incur a financing cost of about $10 on a daily basis for these two relatively large positions.


Netlink trust also went ex-dividend on the 12th Nov and payment date for the ordinary holder will not happen until the 27th Nov.

However, for CFD account, your dividends are immediately credited to your account given that you are borrowing the shares and your borrowing cost is computed liable on a daily basis.

Given the usual nature that the share price will usually drop on the day of the xd, it usually nets off before the share price grows gradually up again.

I have not found a sweet position to utilize my CFD better but am tinkering to think that holding long term using this strategy might not be the best strategy.

But this is an experiment, so I get to see both the nice and ugly side.

Currently, Netlink is in a green position while CRCT is in a loss position.

I might tinker shorting a position for the short term in the near future when I get the chance to do so.

That'll be my another experiment I wanted to try out.

P.S: Double the risk, double the reward, but it won't be nice for those who fell prey to it.

Thanks for reading.

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6 comments:

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  2. Why would you use CFD? The interest that is incurred on it would affect your returns. Furthermore wide swings could cause big losses.

    ReplyDelete
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  4. Hi B.

    I don't quite get it. Why would you use CFD and gear up to 2x of cash. When you could use margin at 2.88 percent. And a hive a similar gearing.

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