CFD TRADING EXAMPLES

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CFD trading
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Compiled below are several CFD trading examples. Please note that these are just examples; be aware that trading Forex and Contracts for Difference (CFDs) – like online futures trading – is speculative and involves significant risk.

Assumptions

You funded your Trading Account with a $2,000 initial deposit.

You are considering investing in the US Equity Market and below are the trading conditions of some US Equity CFD Indices:

Instrument Name  Contract Size Leverage (Approximately)
S&P 500  1  100:1
DJ 30  1  100:1

USD interest rate is charged at 4.0%.

CFD Positions left open overnight incur a financing charge against the whole amount of the position at a rate of +/ -1.5%.

DAY 1 – Friday, July 3.

The US Non-Farm Payroll numbers come out worse than expected – unemployment rate is rising. This causes US stock markets to fall 2%.

You believe that stock market losses are overdone and that upcoming corporate earnings numbers will be better than expected, and decide now is a good time to go long on the US stock market. You decide that the S&P 500 CFD is your best choice since it encompasses a wide group of market leading companies, and buy 100 lots at $874.25.

Since you have bought 100 lots, an increase of 1 point in the S&P 500 index from 874.25 to 875.25 will earn a profit of $100, while a drop of 1 point from 874.25 to 873.25 will incur a loss of $100.

+ Opened Position: Buy 100 S&P Lots at 874.25 (Total purchase amount = $87,425)

+ Client Account Report

Balance (USD) Equity (USD) Lots Open # Used Margin (USD) Usable Margin (USD>
$2,000 $2,000 100 $874.25 $1,125.75
  1. Balance = Deposit ($2,000) + Sum of Realized Profit & Loss ($0) = $2,000
  2. Equity = Balance ($2,000) + Sum of Unrealized Profit & Loss ($0) = $2,000
  3. # Lots open = # lots S&P 500 CFD purchased = 100 lots
  4. Used Margin = # Lots open (100) x Value of one lot ($874.25) x Margin (1%) = $874.25
  5. Usable Margin = Equity ($2,000) – Used Margin ($874.25) = $1,125.75

DAY 4 – Monday, July 6.

Your Assumptions are correct and corporate profits are better than expected as US companies were able to boost their earnings by cutting their expenses. On the next trading day, the S&P rallies over 3% to $901.50 where you close your position by selling your CFDs.

+ Closed Position: Sell 100 S&P Lots at 901.50 (Total sale amount = $90,150)

+ P&L Report:

Open Long Position $87,425 = 100 S&P lots bought at 874.25 (Total purchase amount = $87,425) on Friday, July 3
Starting Value $87,425
Overnight Financing $26 1 lot of S%P 500 is $874.25

Financing Charge: 4.0% + 1.5% = 5.5%

Daily interest charge: [874.25 x (4.0% + 1.5%)]/360 = $0.13, i.e 13 cents per lot each day

Total interest charge:$0.13 x 100 lots x 2 days = $26

Sales Proceeds $90,150 = 100 S&P lots sold at 901.5 on Monday, July 6.
Net Cost $26 = Interest paid to maintain the CFD long position that was opened
Profit on Trade $2,699 = Sale proceeds – Starting Value – Overnight financing = $90,150 – $87,425 – $26 = $2699

DAY 6 – Wednesday, July 8.

Two days later, more poor economic data is published in the US and market sentiment turns negative. To capitalize on the downward correction in stocks, you decide to sell (go short) the Dow Jones (DJ 30) with the aim of buying it back cheaper in the short-term. On July 8, you sell 5 Lots of DJ 30 at a price of $8,180.00.

Since you have sold 5 Lots, every drop of one point in the DJ 30 will earn you $5, and every increase of one point will cost you $5.

+ Opened Position: Sell 5 Lots of DJ 30 at $8,180.00 (Total sale amount = $40,900)

DAY 7 – Thursday, July 9.

Again, your strategy succeeds. Overnight the market drops lower and the next day, July 9, you buy back the 5 Lots of DJ 30 at $8,150, making a gross profit of $150 (5 lots x $30).

+ Closed Position: Buy 5 Lots of DJ 30 at $8,150 (Total purchase amount = $40,750)

+ P&L Report:

Open Sell Position $40,900 = 5 DJ 30 lots sold at $8,180 (Total sale amount = $40,900) on Wednesday, July 8.
Starting Value $40,900
Overnight Financing $2.85 1 lot of DJ 30 is $8,180

Financing Charge: 4.0% – 1.5% = 2.5%

Daily interest received: [$8,180 x (4.0% – 1.5%)]/360 = $0.57, i.e 57 cents per lot each day.

Total interest received: $0.57 x 5 lots x 1 day = $2.85

Purchase Amount $40,750 = 5 DJ lots bought at $8,150 on Wednesady, July 9.
Profit on Trade $152.85 = Starting Value – Purchase Amount + Overnight Financing = $40,900 – $40,750 + $2.85 = $152.85

PLEASE NOTE: the exact amount of interest to debit/ credit may vary each day depending on changes in any of the following factors: the underlying instrument price, central bank rates, margin rates and the individual CFD portfolio.

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