Index and share CFDs

Open the chart for an index CFD and the first thing above the price is the name of the basket. That name tells you which companies are inside. A basket such as US30 holds thirty large companies listed in the United States. The chart line is the average of their prices, weighted by the rules of the index provider. You are not buying any of those companies. You are holding one contract whose value follows that average.

A share CFD chart shows one company only. The name at the top is the company, not a basket. The line moves when that company reports results, changes its dividend, or is mentioned in the news. A single headline can move the chart several per cent in a session. The same headline may not move the index at all, because one company is a small part of a large basket.

Look at the time axis at the bottom of the chart. For an index or share CFD it is not a full day. The chart stops when the exchange where those shares trade closes. When it reopens, the first price can be far from the last one you saw. That space on the chart is a gap, and it appears while you cannot trade. A currency pair such as EUR/USD does not have this exchange session, so its chart runs almost without a break.

A company in the basket may pay a dividend to its shareholders. If you hold a share CFD on that company, the broker adjusts your position. The adjustment is usually a credit if you are long and a debit if you are short. It appears in your cash balance, not as a change in the chart price. The chart can look flat while your balance has already moved.

An index CFD can also be adjusted when companies inside the basket pay dividends. The index provider may reduce the index level by the dividend amount, so the chart itself drops. The broker then applies a separate adjustment to your account. The two adjustments are meant to cancel out for a long position, but the timing can differ. Read the contract specification to see how your broker handles this.

Corporate events such as a share split or a merger change the number of shares and the price of one share. The index provider adjusts the basket, and the broker adjusts the CFD contract. The price step and the contract size may change after the event. If you do not check, you may find your position size no longer matches what you intended. The contract specification is the document that lists these rules, and it is different for every broker.

The spread is the difference between the buy price and the sell price on the chart. It is quoted in points for an index CFD and in pips for a currency pair. For an index CFD with a price step of 1.0 point worth ₱56 per contract, a spread of 2 points costs ₱112 per contract before the market moves at all. The spread varies between brokers and can widen when the exchange is closed or when news is released.

A daily financing charge applies if you hold the position overnight. It is based on the value of the position and an interest rate set by the broker. The rate varies between brokers and can change. For a share CFD, the charge may also include a borrow fee for short positions. These charges are deducted from your cash balance each day, so a position held for a week pays the charge several times.

Trading hours are set by the exchange where the underlying shares trade. An index CFD on a European basket may open when the Philippine market is closed. A share CFD on a Philippine company follows the Philippine Stock Exchange session. The SEC Philippines regulates the brokers that offer these products to residents, but it does not set the trading hours of foreign exchanges. Check the contract specification for the exact hours and for any break in the session.