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CFD trading vs Share trading Print E-mail

Take XYZ share, it trades at:

$1 on 30/6/08

$1.1 on 30/9/08 

An example of the approximate outcome of trading on the two different methods is highlighted below:

CFDShare
Capital Available:$1030Capital Available:$1030
Buy $10,000 worth of XYZ CFDs at 10% marginDeposit 10% of $10,000 = -$1000Buy 1000 XYZ Share at $1 on 30/6/08 = -$1000
Commission of -$30Commission of -$30
Sell $11,000 worth of XYZ CFDsReceive $1,000 profit for price movement = +$1,000Sell 1000 XYZ Share at $1.1 on 30/9/08 = +$1000
Commission of -$30Commission of -$30
10%p.a. interest cost on Loan of $10,000 = (.10*3/12*10000) = -$250 
  
Profit = -30 +1000 -30 -250 = $690Profit = -1000 – 30 + 1100 -30 = $40
 

There are many assumptions in the simplified example given above. Please note that it could just as easily been a very large loss in the CFD, the example serves to show the magnifying impact of leverage.
Last Updated ( Friday, 25 April 2008 )
 
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