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CFDs: The Definitive Guide to Contracts for Difference by David James Norman

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2: The Mechanics of CFDs

CFDs are not complex instruments. And they do share some similarities with other derivatives, differing only in detail. However, in the case of CFDs, it is the detail that is important. It is only by understanding the detail – for example, the seemingly innocuous financing charges – that the true nature of CFDs can be understood.

So, this chapter is about the detail!

This chapter describes the mechanics of CFDs, covering first the money flows of a trade and then looking at how corporate actions affect equity CFDs.

Money flows of a trade

This section will look closely at the money flows of a trade, including:

  1. Margin
  2. Commissions
  3. Financing costs (including long-term funding of a CFD position and financing ...

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