Index and share CFDs
Compare a currency pair with an index CFD before you trade
A currency pair never closes for a holiday in the middle of its main session. An index CFD does. The index has an opening bell and a closing bell in its home market, and your platform shows those hours. Outside them, the price stops moving and you cannot close the position until the market reopens. A gap can appear between the close and the next open.
A currency pair pays no dividend and has no share split. An index CFD carries both. If a company in the basket pays a dividend while you hold a long position, the broker may credit or debit your account. The amount is not a profit from price movement. It is a separate cash adjustment. The contract details show whether that adjustment is a credit or a debit.
A currency pair charges financing only on the leveraged amount. An index CFD charges financing every day the position stays open, and the charge can be positive or negative. The rate varies between brokers and can change. You can check the current rate in the platform before you open the position. If the rate is not shown, ask the broker for it in writing.
Calculate the cost of holding an index CFD overnight
Financing is calculated on the full value of the position, not on your deposit. Suppose the index is at 18,000 points and the contract size is 0.1 units per point. The position value is 18,000 x 0.1 = 1,800 dollars. At an annual financing rate of 5 per cent, the daily charge is 1,800 x 0.05 / 365 = 0.2466 dollars. At KSh 100 per dollar, that is about KSh 25 per day.
If you hold the position for ten days, the financing adds up to 10 x KSh 25 = KSh 250. That cost is separate from any price movement. A small favourable move in the index can be wiped out by ten days of financing. The longer you hold, the more the cost matters. This is why an index CFD is not a long-term savings product.
A share CFD works the same way but the position value is the share price times the number of shares. If the share price is 50 dollars and you hold 20 shares, the value is 1,000 dollars. At the same 5 per cent rate, the daily charge is 1,000 x 0.05 / 365 = 0.137 dollars, or about KSh 14 per day. The calculation is identical; only the numbers change.
Check the corporate events that change your position
A share split changes the number of shares you hold and the price per share. If a company splits two for one, you hold twice as many shares at half the price. The total value stays the same at the moment of the split. But the contract size and the price step may change. Your platform should update the position automatically. If it does not, the position is not correct.
A dividend on a share CFD is treated as a cash adjustment. If you are long, you may receive the dividend; if you are short, you may pay it. The amount depends on the dividend per share and the number of shares in your position. The broker may also apply a withholding tax, which varies by country and by broker. You can find the exact treatment in the contract details.
An index CFD can also be affected by a dividend from a company in the basket. The index provider adjusts the index level, and the broker adjusts your position. The adjustment is not a trading profit or loss. It is a separate entry on your statement. If you do not see it, check the contract details or ask the broker. Do not assume it has been forgotten.
Two index CFDs, two price steps
| Step | Amount | Note |
|---|---|---|
| US30 index CFD, one point | KSh 1,000 | A common contract size is one unit of the index per point; at a rate of KSh 100 to the dollar, one point is 10 dollars, which is KSh 1,000. Contract sizes vary between brokers, so check yours. |
| US30 index CFD, 20 points | KSh 20,000 | 20 points x KSh 1,000 per point. |
| Local index CFD, one point | KSh 100 | If the contract is 0.1 units of the index per point, one point is 1 dollar, which is KSh 100 at the same rate. |
| Local index CFD, 20 points | KSh 2,000 | 20 points x KSh 100 per point. The same 20-point move is ten times smaller in money. |
| US30 trading hours | Around the clock | Index CFDs often trade nearly 24 hours on weekdays, but the underlying exchange has set sessions. Hours vary between brokers. |
| Local index trading hours | Exchange session only | A local index CFD usually follows the exchange's own opening and closing times, so it may be closed when US30 is open. |
The broker may round the price step, quote a wider spread outside the main session, and add a daily financing charge. A dividend paid by a company in the basket may be credited or debited to your account, and a share split changes the number of units you hold. These rules vary between brokers.
Doing it once, step by step
You will compare two contracts side by side, then calculate the daily financing on each, and finally write down the corporate events that apply. Do the steps in order, once, before you open any position.
- 01
Compare the trading hours
Open the contract details for the index CFD and for EUR/USD. Write down the opening and closing time for each in your own time zone. Note the daily break and any holiday closures. If the index CFD closes while you are asleep, you cannot close it until the next session.
- 02
Compare the price step and spread
Find the minimum price movement for each instrument. For EUR/USD it is a pip. For the index CFD it is a point. Write down the spread at the current time. Check whether the spread is wider outside the main session. A wider spread means a higher cost to enter and exit.
- 03
Calculate the daily financing
Use the formula: position value x annual rate / 365. For an index CFD, position value is index level x contract size. For a share CFD, it is share price x number of shares. Convert the result to shillings at the current rate. Write the daily cost beside the position.
- 04
List the corporate events for the next month
Check the economic calendar for dividends and share splits on the companies in the index or on the single share. Write the dates. Note whether you will be long or short on each date. The adjustment will be a credit or a debit, not a price movement.
- 05
Write the total cost of holding for five days
Multiply the daily financing by five. Add the spread cost for entering and exiting. Compare that total with the size of the price move you expect. If the expected move is smaller than the total cost, the position is not worth opening.
- 06
Decide whether the position matches your plan
If the hours, the price step, the financing and the corporate events are all clear, you can place the order. If any of them is not clear, do not trade. Close the platform and read the contract details again. A position you do not understand is a position you cannot manage.
The mistake most people make here
The common mistake is to treat an index CFD like a currency pair and leave it open for days without checking the calendar. A dividend or a share split can change the position size overnight, and financing is charged for every day it stays open. Before you place the order, read the contract details for that instrument: the price step, the trading hours, and what happens on a corporate event. If those three things are not clear, the position is not ready to open.Check yourself
A local index CFD has a contract size of 0.1 units per point and the index moves 30 points. What is the profit or loss in shillings if one dollar is KSh 100?
One point is 0.1 x 1 dollar = 0.1 dollars, which is KSh 10. 30 points x KSh 10 = KSh 300.
EUR/USD is at 1.0850 and you hold one standard lot. One pip is 10 units of the quote currency. What is one pip worth in shillings if one dollar is KSh 100?
10 dollars x KSh 100 = KSh 1,000 per pip.
US30 moves 15 points on a contract of one unit per point, with one dollar at KSh 100. What is the change in shillings?
One point is 1 dollar, which is KSh 100. 15 points x KSh 100 = KSh 1,500.
Questions that come up next
How do I find the trading hours for an index CFD before I open a position?
The platform usually lists the hours in the contract details for that instrument. Look for the opening and closing times in the home market of the index, not your local time. The hours can differ on public holidays. If the hours are not shown, ask the broker for them in writing. A position left open through a closed session cannot be closed until the market reopens.
What happens to my share CFD if the company pays a dividend while I hold it?
The broker makes a separate cash adjustment to your account. If you hold a long position, you may receive a credit that matches the dividend, or you may pay a debit. The amount is not a profit from price movement. The contract details show whether the adjustment is a credit or a debit. The timing can be on the ex-dividend date or the payment date, and that varies between brokers.
Does a share split change the value of my position?
A split changes the number of shares you hold and the price per share. The total value of the position stays the same at the moment of the split. For example, two shares at 50 dollars become four shares at 25 dollars. The broker adjusts your position size automatically. Check the contract details to see how the adjustment is applied.
How is financing on an index CFD different from financing on a currency pair?
A currency pair charges financing only on the leveraged amount. An index CFD charges financing on the full value of the position, every day it stays open. The rate can be positive or negative and varies between brokers. You can check the current rate in the platform before you open. If it is not shown, ask the broker for it in writing.
Can I hold an index CFD for several weeks without checking it?
No. Financing is charged for every day the position stays open, and a dividend or share split can change the position overnight. A small favourable move can be wiped out by the daily cost. The calendar of corporate events matters. If you do not check it, the position can behave in a way you did not expect.
What should I check in the contract details before I trade an index or share CFD?
Check three things: the price step, the trading hours, and what happens on a corporate event. The price step tells you the smallest movement that changes your profit or loss. The trading hours tell you when you can open and close. The corporate event rule tells you how a dividend or split is handled. If any of those three is not clear, the position is not ready to open.
In Kenya
- Regulator
- The Capital Markets Authority (CMA) licenses and supervises investment firms in Kenya.
- Money
- The shilling, written KSh (KES), is the currency used for deposits, withdrawals and account statements.
- Funding methods
- M-Pesa and bank transfer are the usual ways to move money in and out of a trading account.
- Instrument in examples
- EUR/USD, around 1.0850, is used for pip calculations because one pip on one standard lot is 10 units of the quote currency.
- Contract sizes
- Contract sizes, trading hours and financing charges for index and share CFDs vary between brokers, so read the contract details before trading.
The words used on this page
- financing
- A daily charge for holding a CFD overnight. It is calculated on the full value of the position, not on your deposit. The rate varies between brokers and can be positive or negative.
- dividend
- A cash payment a company makes to its shareholders. If you hold a share CFD or an index CFD that includes that company, the broker may credit or debit your account. It is a separate adjustment, not a profit from price movement.
- share split
- A company divides its existing shares into more shares. The price per share falls, but the total value of your position stays the same at that moment. The number of shares you hold changes automatically.
- contract size
- The amount one unit of the CFD represents. For an index CFD it is often a small number of units per point. For a share CFD it is usually one share. It is used to calculate the value of each price step.
- price step
- The smallest change in the price of the instrument. For an index CFD it is often one point. For a share CFD it is usually one cent. The contract details show the exact step for that instrument.
- corporate event
- An action by a company that changes its shares, such as a dividend or a split. It can change your position size or cause a cash adjustment. The contract details explain how the broker handles it.
What to take away
- An index CFD moves with a basket of companies; a share CFD moves with one company.
- Both charge financing every day you hold them, calculated on the full position value.
- A dividend or share split changes your position while you hold it, unlike a currency pair.
- Check the trading hours, price step and corporate event rules before you open any position.