CFDs Trading Examples
| Example 1: Equity (Shares) CFDs |
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XYZ is announcing its 2nd quarter results tomorrow. In the belief the results will be better than expected, you BUY 2,500 CFDs. This means that for every penny the share rises, you win £25, and for every penny it drops, you lose £25 (This is equivalent in size to buying 2,500 shares in the underlying market itself.)
A commission of 10 "basis points" (0.10% x the price dealt at x the number of CFDs) is debited from your account, i.e. (4.55 x 2,500 x 0.10%) = £11.38.
GFT Global Markets' individual equity markets are subject to a commission rate of 10 basis points. All other markets are commission-free, i.e. our charges are included in the buy-sell "spread."
At 7am the next morning, XYZ results are indeed above forecast. By 08:30, the share is trading at 476 - 477.
You decide to take your profit and SELL 2,500 XYZ CFDs at 476, thus closing your trade.
Again, this trade is subject to our commission of 10 basis points, or (4.76 x 2,500 x 0.10%) = £11.88.
You have realised a trading profit of (4.76 - 4.55) x your stake of 2,500 CFDs = £525.
After taking into account the financing charge and commission, you have made a net profit of (525 - 11.38 - 11.88 - 2.34) = £499.40.
When you trade CFDs, you are always trading in the "base" currency of the underlying market. E.g. if you trade a US share, you are trading in cents.
Trade Summary:
BUY 2,500 Share CFDs
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In price
Out price
Commission in
Commission out
Finance adjustment
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4.55
4.76
11.38
11.88
2.34
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TOTAL PROFIT
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£499.40
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NIGHT FINANCE ADJUSTMENT
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As you hold the position overnight, a finance adjustment is made to your account.
This is calculated as follows: f = (s x p x r) / d where:
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f = |
daily financing charge |
s = |
number of CFDs (2,500) |
p = |
closing price as determined by GFT Global Markets (456p - usually this will be the price on close of the underlying share) |
r = |
relevant overnight LIBOR rate, PLUS 300 basis points for long positions, or MINUS 300 basis points for short positions, e.g. (4.50% + 3.00%) = 7.50% |
d = |
number of days, i.e. 365 for UK shares and 360 for all others |
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Long (buy) trade positions are debited the daily financing charge
Short (sell) positions are credited the daily financing charge
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So, the finance adjustment will be a debit to your account, equal to:
(2,500 x 4.56 x 7.5%) / 365 = £2.34
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Note: All rollovers and associated finance adjustments are carried out at 10pm London time.
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DIVIDENDS
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Dividend adjustments are credited to long positions (buy trades) and debited from short positions (sell trades) held after the close of business on the day before the share is due to go ex-dividend. The exact amount of the adjustment depends on the dividend tax treatment of the relevant country, so:
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UK shares
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Buy trades are credited with 90% of the gross dividend
Sell trades are debited with 100% of the gross dividend
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US shares
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Buy trades are credited with 85% of the gross dividend
Sell trades are debited with 100% of the gross dividend
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Euro and
other shares
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Buy trades - amount varies from country to country
Sell trades are debited with 100% of the gross dividend
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Remember: Using CFDs, you can generally go short ("Sell") of a share price – in expectation of that share price falling - just as easily as you can go long ("Buy") of a share price. (Occassionally, restrictions may be imposed on short-selling if the underlying stock is subject to a lack of liquidity.)
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| Example 2: Stock Market CFDs |
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The GFT Global Markets current quote for UK 100 cash is 6051 - 6053
The UK 100 index is trading around 6050. After a strong rally of 200 points over the last month you believe the market may be due a fall.
You SELL 10 CFDs at 6050. For every point that our quote on the UK 100 index falls, you will win £10, but for every point it rises you will lose £10.
Two days later you see that our quote on the UK 100 has actually risen to 6080 - 6082. Deciding to cut your losses you close your trade and BUY £10 at 6082.
This trade resulted in a loss of (6082 - 6051) x your stake of 10 CFDs = £310.
Trade Summary:
SELL 10 Stock Market CFDs
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In price
Out price
Finance adjustment
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6050
6082
4.99
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TOTAL LOSS
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£310
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DAILY FINANCING CHARGE
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You will have incurred 2 days' financing charges for this rolling trade.
This is calculated as follows: f = (s x p x r) / d where:
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f = |
daily financing charge |
s = |
your stake (10 CFDs) |
p = |
closing price as determined by GFT Global Markets (e.g. 6055.0 and 6075.4) |
r = |
relevant LIBOR rate, PLUS 300 basis points for long positions, or MINUS 300 basis points for short positions (here, this is (4.50% - 3.00%) = 1.50%) |
d = |
number of days, i.e. 365 for UK shares and 360 for all others |
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Long (buy) trade positions are debited the daily financing charge
Short (sell) positions are credited the daily financing charge
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So, the finance adjustment will be a credit to your account, equal to:
Day One: (10 x 6055.0 x 1.5%)/365 = £2.49
Day Two: (10 x 6075.4 x 1.5%)/365 = £2.50
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I.e. Total financing adjustment = £4.99
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DIVIDENDS
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If you have an open trade in an index in which constituent companies are due to go ex-dividend, your account will be adjusted to reflect this. The number of index points by which the index will open lower on the day of the ex-dividend(s) is dependent on the weighting of the companies concerned.
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Buy trades are credited with the value of the aggregate index point effect times your stake.
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Sell trades are debited the value of the aggregate index point effect times your stake.
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| Example 3: Metal CFDs |
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The GFT Global Markets quote for Gold - September is 680.0 - 680.7
It is June and the price of gold has been soaring recently as speculators push the price higher and higher. You decide the rally still has further to go and check the GFT trading platform for our quote on Gold.
GFT's Gold quote is based on the underlying futures contract.
You BUY 20 CFDs at 680.7, and here you should note:
A. That you are trading "per 0.1", i.e. if Gold moves from 680.0 to 681.0, that is 10 "ticks", or equivalent to a $200 move on a trade of 20 CFDs.
B. That the base currency of the underlying Gold futures market is US dollars, so this is what you will be trading in.
"Trading Per" values are shown on Order Tickets for easy reference.
This trade, if left, would expire (i.e. close automatically) on August 18th.
For details of all market expiry dates, please see our market information sheets.
However, by the beginning of July the price has already risen through the $700 level, and our quote is 702.5 - 703.2.
You decide to close part of your position and SELL 10 CFDs at 702.5.
This realises a profit of (7025 - 6807) x your stake of 10 = $2180.
You leave the remaining 10 trade to run until expiry of the market in August. Unfortunately by then the profit-takers have stepped in and the market expires at 675.5.
On this remaining 10 CFD trade you have realised a loss of (6807 - 6755) x 10 = $520.
Overall, the 20 CFD trade results in a profit of £ (2180 - 520) = $1660.
Trade Summary:
BUY 20 Metals CFDs
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In price
1st out price
Profit taken
2nd out price
Loss incurred
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680.7
720.5
£2180
675.5
£520
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TOTAL PROFIT
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£1660
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| Example 4: FX CFDs |
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GFT Global Markets' quote for the GBP/USD CFD is 1.8552 - 1.8555
On the eve of a Bank of England rates meeting, the sterling/US dollar spot rate (GBP/USD) is trading around 1.8553.
You believe the Bank may well make a surprise hike in UK rates and BUY 200,000 CFDs at 1.8555, expecting the pound to strengthen relative to the US dollar. This is equivalent to buying £200,000.
Our FX CFDs are a special form of CFD which give you exposure to underlying exchange rates BUT they are cash-settled, so they cannot result in delivery of the underlying currency.
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NIGHTLY FINANCING CHARGE
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Finance adjustments are made to trades held overnight (i.e. after 10pm UK time) on rolling markets.
For trades on currencies, this is calculated as follows: f = (s x p x r) / d where:
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f = |
daily financing charge |
s = |
the number of CFDs you hold in the 2nd currency |
p = |
rollover price (the GFT Global Markets mid-price at 22:00 UK time that day, say 1.8560) |
r = |
differential of relevant overnight LIBOR rate of 1st named currency and that of 2nd named currency, here these are 4.50% and 5.00% = .05% differential |
d = |
number of days, i.e. 360 |
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If the first currency has a higher interest rate, then you are credited interest for running a long position and debited interest for running a short position.
If the first currency has a lower interest rate, then you are debited interest for running a long position and credited interest for running a short position.
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and so here, the adjustment would have been equal to:
(200,000 x 1.8560 x -0.5%)/365 = -$5.08
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At 10:45 the next morning the Bank's decision is announced — rates are maintained at their current level and sterling drops. Deciding to close your trade you see that the current quote is 1.8490 - 1.8493 and SELL 200,000 CFDs at 1.8490.
A quick way to work out potential profit is to think of the value of one "pip", i.e. for GBP/USD, for 100,000 CFDs each pip has a value of $10
Trade Summary:
BUY 20,000 FX CFDs
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In price
Out price
Finance adjustment
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1.8555
1.8490
5.08
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TOTAL LOSS
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£1300
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| Example 5: Government Bonds CFDs |
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The GFT Global Markets quote for UK Gilt - September 06 is 110.45 - 110.48
Ahead of a busy week on the UK economic data calendar, you decide that the data will be hawkish for UK interest rates, and that the price of the benchmark UK government bond - the "Long Gilt" - should fall as a result.
You Sell 100 CFDs at 110.45.
By Friday it appears that the data has in fact been relatively in-line with market expectations. After trading in a tight range all week, Gilt futures have now started to rally.
The current GFT Global Markets quote is now 110.63 - 110.66. You decide it's time to cut your losses and Buy 100 CFDs at 110.66, resulting in a loss of (11045 - 11066) times your stake of 100 = a loss of £2100.
GFT Global Markets makes a market on several government bond futures. (The market price of government bond futures is closely linked to interest rate expectations, as the bonds themselves are fixed income securities. In usual circumstances, bond futures prices will rise as interest rate expectations fall and vice versa)
Trade Summary:
BUY 100 Bond CFDs
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In price
Out price
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110.45
110.66
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TOTAL LOSS
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£2100
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| Example 6: .GOLD |
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The GFT quote for spot Gold is 927.6 – 928.1
Unlike GFT’s Gold futures contract the Spot Gold market enables you to trade a rolling Gold contract without the contract expiring. A position held in the Spot Gold market will be subject to a daily financing adjustment (outlined below).
Example: It has been a very active day in the Gold market as speculators have continued to push up the price. Spot gold finishes the session just off the day’s highs and you believe that there is still much room for further rises.
You BUY 20 CFDs at 927.6, and here you should note:
- That you are trading “per 0.1” i.e. if Gold moves from 927.6 to 928.6, that is 10 “ticks”’’ or equivalent to a $200 move on a trade of 20 CFDs.
- That the base currency of the underlying Spot Gold market is US dollars, so this is what you will be trading in.
By the following day you notice that the price has risen yet further, through the $950 level, and our quote is 950.1 – 950.6.
You decide to close part of your position and SELL 10 CFDs at 950.1.
This realises a profit of (9501 – 9276) x your stake of 10 = $2250.
You leave the remaining 10 to run as you feel that there is still plenty of room for further price increases.
The following day you notice that GOLD has fallen as speculators begin to take profits; our quote is 922.6 – 923.1
You SELL 10 CFDs to close out the position at 922.6
This realises a loss of (9276 – 9226) x your stake of 10 = $500
Trade Summary:
BUY 20 Spot Gold CFDs
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In price
1st out price
Profit taken
2nd out price
Loss incurred
Finance adjustment
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9276
9501
2250
9226
500
44.13
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TOTAL PROFIT
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1705.87
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NIGHT FINANCE ADJUSTMENT
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As you hold the position overnight, a finance adjustment is made to your account.
This is calculated as follows: f = (s x p x r) / d where:
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f = |
daily financing charge |
s = |
number of CFDs (20) |
p = |
closing price as determined by GFT (day 1 930.6 day 2 941.5 - basis the GFT quote at 17:00 New York Time) |
r = |
overnight LIBOR rate, PLUS 300 basis points for long positions, or MINUS 300 basis points for short positions, e.g. (2.67% + 3.00%) = 5.67% |
d = |
number of days, i.e. 360 for Spot Gold. |
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Long (buy) trade positions are debited the daily financing charge
Short (sell) positions are credited the daily financing charge
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So, the finance adjustment will be a debit to your account, equal to:
Day 1 (20 x 9306 x 5.67%) / 360 = 29.31
Day 2 (10 x 9415 x 5.67%) / 360 = 14.82
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Note: All rollovers and associated finance adjustments are carried out at 10pm London time.
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CFDs are a leveraged product and therefore may not be suitable for all investors. CFDs carry a high degree of risk to your capital and it is possible to lose more than your initial investment or credit allocation as well as any variation margin that you may be required to deposit from time to time. You should only speculate with money that you can afford to lose. Please ensure that you fully understand the risks involved and seek independent advice if necessary and prior to entering into such transactions.
Click here to read the full risk warning.
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