Share cfd
Family I · Instruments
Not to be confused with cfd, cfd trading, cfd analysis.
Share CFD stands for share contract for difference: a bilateral derivative between a buyer and a seller in which the parties settle the change in the price of a specified listed share over the life of the contract. The holder gains or loses from the share's price movement, and in many jurisdictions also from dividends and corporate actions applied to the position, but never acquires legal title, voting rights or an entry on the company's share register. Because no share changes hands, the position is opened on margin and is typically financed daily.
Mechanics and cash flows
A share CFD is quoted as a price per share, mirroring the underlying stock, and the position size is expressed in shares. Profit or loss equals the number of shares multiplied by the change in price, adjusted for the contract's currency. Two cash flows recur: financing, charged or credited daily on the notional value of the position, and dividend adjustment, credited to long positions and debited from short positions when the underlying share goes ex-dividend. Neither is a dividend in the tax sense; both are contractual payments under the CFD.
Margin requirements, financing rates, dividend treatment and the availability of short positions are set by the provider and vary by broker, by jurisdiction and by the liquidity of the underlying share. A share CFD does not confer shareholder rights, so a holder cannot vote at a general meeting or subscribe to a rights issue as a registered owner would.
Worked example
A long position of 1,000 share CFDs is opened at 250.00 and closed at 258.00, with a financing charge of 0.30 per share over the holding period.
The same arithmetic applies in reverse to a short position, where a fall in the share price produces a gain and a rise produces a loss, with financing and dividend adjustments flowing the opposite way.
Where share CFDs sit
Share CFDs belong to the wider family of CFDs, alongside index, commodity and currency CFDs. They differ from other members of that family in that the reference asset is an individual equity and the position is therefore exposed to company-specific events such as earnings releases, takeovers and index rebalancing, in addition to broad market moves. Settlement is in cash; physical delivery of the underlying shares does not occur.
Often confused with
- cfd
- A CFD is the general contract type, of which the share CFD is one variety defined by an equity underlying; the visible sign is the reference asset named in the contract.
- cfd trading
- CFD trading is the activity of buying and selling such contracts, not the instrument itself; the visible sign is that it describes an action rather than a product.
- cfd analysis
- CFD analysis is the study of CFD positions, pricing or performance, not a tradeable contract; the visible sign is that it names a method of examination rather than an instrument.