BBVA Trader CFDs

Complete example for trading an index CFD

Complete example for trading a CFD on stocks 

Complete example for trading a currency CFD

Complete example of trading a CFD on Index Plus

Holding a position in a CFD does not imply possession of the underlying asset as such, but the CFD is affected by corporate actions related to the underlying asset. Thus, the corporate action of a dividend payment for the underlying asset involves a payment or charge to the customer's account, depending on the long or short position the investor holds in the CFD.

To be eligible for the dividend, as with stock, the customer must hold the CFD in their portfolio on the dividend's ex-date. In this case, the investor may be affected by dividend adjustments for both CFDs on stock and indexes. For CFDs on indexes, there are cases in which the dividend is not paid/charged, as the dividend is reflected in the listed price of the underlying asset; this happens, for example, in the German index.

In the event that the investor has a long position open for a CFD on stock, the dividend compensation will be paid into their account. The tax impact borne by the CFD issuer on dividend receipt will be deducted from this payment. On the other hand, if the investor has a short position, the amount corresponding to 100% of the gross dividend will be charged to their settlement account.

Example: The company listed in Spain pays a gross dividend of EUR 0.57 per share. If the investor has a long position of 100 CFDs in company X in their portfolio, 81% of that gross dividend will be paid, i.e. EUR 46.17 (EUR 0.57 x 0.81% x 100 CFDs). On the contrary, if the investor maintains a short CFD position on this value, their account will be charged for 100% of the gross dividend, i.e. EUR -57 (EUR -0.57 * 100 CFDs).

Important Notice : In the case of dividends on US underlying assets, due to American laws, these dividends will not be paid or debited and the CFD position on these underlying assets will be automatically closed in advance of the underlying asset dividend payment ex-date.

The sequence will be as follows: two days before the dividend payment ex-date of a US underlying asset, CFD trading will not be allowed on this underlying asset, except to close open positions on that CFD. The day before, investors with a position will receive a notification warning that, if they do not close the position, the platform will automatically close it.

CFD trading will be suspended from the day before the ex-date until the day following the dividend payment ex-date.

In the event that an investor has a long CFD position whose underlying asset is an index, the dividend compensation paid by a company which is part of the index will be paid to the investor's account. On the other hand, if the investor has a short position, the dividend compensation will be charged to their settlement account. In both cases, the calculation will be made according to the weight of the company in the index. 

Example: Company Y pays a gross dividend of EUR 0.57 per share, and is part of a Spanish index in which it has a weight of 3%. If the closing price of the share is EUR 23.17 and the index price is EUR 8,750.16, the dividend corresponding to the CFD whose underlying asset is the aforementioned index would be as follows:

(EUR 0.57 x (EUR 8,750.16 x 3%)/EUR 23.17) = EUR 6.45.

If an investor has a long CFD position on that index, they will be paid 81% of EUR 6.45 for each contract that they have in their portfolio. For the short position the investor holds in the CFD on this index, EUR 6.45 will be charged per contract.

Important notice: For performance indexes (e.g. German indexes), for long CFD positions, the amount of the taxes payable on dividends will be deducted from the CFD account. No payments will be made to the account for the dividend amount. For short CFD positions on this type of underlying asset, no charge will be made to the investor account. 

The leverage of a CFD is easy to calculate

100: Margin = Leverage.

Example:

With a margin of 20%, the remaining 80% of the position is not paid out when the trade is made. This offers 5x leveraging.

Initial margin x leverage = exposure to the value of the underlying asset on the market.

Assuming you invest €1,000 in a CFD, this results in:

€1,000 (initial margin) x 5 (leverage) = €5,000 (exposure to the value of the underlying asset on the market).

A positive or negative price difference in the CFD that you took will yield the following result:

€5,000 x (1% change in price) = €50

€5,000 x (1% change in price) = -€50

Therefore, depending on how the prices move, a 1% change will result in a 5% gain or loss in your initial margin: Profit: €50/€1,000 = 5%; Loss: -50€/1,000€ = -5%. Comparison of trading stocks vs CFDs:

Leverage and margin are the main features of CFDs: the lower the margin required, the higher the leverage. The multiplier leveraging effect provides increased exposure to the price movement of the underlying asset.

The initial margin is the part of your capital that you are investing to take a position in a CFD. As a result, the investor pays a lower amount than the value of the underlying asset in the market in which it is traded.

For example, with a €1,000 margin in your CFD stock account, you can take a €5,000 position in the market, which corresponds to a 5x leverage and a 20% margin.

The amount of margin required depends on the type of CFD you are going to trade. For example, in the case of CFDs on stocks, the required margin is 20%, and in index CFDs, the margin is 10%.

Therefore, how much margin would be required to open a €10,000 position? The answer, based on the underlying assets of the CFD, is shown in the following table: 

CFDs are high-risk derivatives. When you trade CFDs, you are speculating on the price of an underlying asset, e.g., a stock or index, without investing directly in the underlying asset.

With a small investment, you can speculate on the rise or fall of the price of the underlying asset. The gain or loss is calculated based on the difference between the entry and exit price.

Due to the high risk involved in trading CFDs, with BBVA Trader CFDs, the risk of loss is limited to the capital deposited in your BBVA Trader CFDs cash account.

• Investors who have in-depth knowledge of the market, and specifically, who have experience trading in volatile markets. 
• Investors who are familiar with how leveraged products work and understand that the higher the leverage, the higher the risk.
  
• Investors who are familiar with CFDs and how they work, as well as the CFD trading platform. They should also know the risks and costs associated with them. 
  
• Investors who are aware of market developments and are always well-informed of events that can affect their investments. They must also be willing to invest a lot of time to track their CFD positions.
  

In general, when the underlying asset of a CFD pays a dividend or otherwise pays the shareholder, the amount of the dividend payable (in the case of long positions) or owed (in the case of short positions) will be the result of multiplying the dividend by the number of CFDs held, minus a 15% tax withholding.

In the case of dividends on underlying US assets, due to American laws, these will not be paid or debited and the position on the CFDs of these underlying assets will be automatically closed in advance.

With respect to other types of financial events that affect the underlying asset of a CFD, it is important to keep in mind that the position in the CFD on the underlying asset will also be closed before the event takes place. Some of the financial events affected are: a capital increase, capital reduction, issue of convertible bonds or warrants, spin-offs, splits, reverse splits, etc.