CFDs: Trading Examples
| Example 1: Equity (Shares) CFDs |
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Company XYZ is announcing its second quarter results tomorrow. In the belief that the results will be better than expected, you BUY 2,500 CFDs. This means that for every cent the share rises, you win $25, and for every cent it falls, you lose $25 (This is equivalent in size to purchasing 2,500 shares in the underlying market)
A commission of 10 basis points (0.10% x the price dealt at x number of CFDs) is debited from your account, or 4.55 x 2,500 x 0.10% = $11.38.
GFT's individual equity markets are subject to a commission rate of 10 basis points. In all other markets, the charges are included in the buy/sell spread.
The next morning, XYZ results are indeed above forecast. By mid-morning, the share is trading at 476 - 477. You decide to SELL 2,500 XYZ CFDs at 476, thus taking your profit and 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 profit of (4.76 - 4.55) x your stake of 2,500 CFDs = $525.
After including the financing charge and commission, you have made a net profit of (525 - 11.38 - 11.88 - 2.34) = $499.40.
Reminder: when you trade CFDs, you are always trading in the base currency of the underlying market. For example, 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 (456c - 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. 360 for all shares other than UK shares, which are 365 |
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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 GMT.
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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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Australian shares
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Buy trades are usually credited 70% of the gross dividend
Sell trades are debited 100% of the gross dividend
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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: When trading CFDs, you can generally go short of ("sell") a share price in expectation of that share price falling, just as easily as you can go long of ("buy") a share price. (Occasionally restrictions may be imposed on short-selling if the underlying stock lacks sufficient liquidity.)
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| Example 2: Index CFDs |
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Let’s say the current GFT quote for AUS 200 cash is 5350 - 5354.
The AUS 200 index is trading around 5350. After a rally of 200 points over the last month, you believe the market may be due to fall
You SELL 10 CFDs at 5350. For every point that our quote on the AUS 200 index falls, you will win $10, but for every point it rises you will lose $10.
Two days later, GFT’s quote on the AUS 200 has actually risen to 5380 - 5384. Deciding to cut your losses you close your trade and BUY $10 at 5384.
This trade resulted in a loss of (5384 - 5350) x your stake of 10 CFDs = $340.
Trade Summary:
SELL 10 Index CFDs
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In price
Out price
Finance adjustment
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5350
5384
4.47
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TOTAL LOSS
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$335.53
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DAILY FINANCING CHARGE
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You will have incurred 2 days' worth of 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 (e.g. 5355 and 5364) |
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. 360 for most, 365 for U.K. |
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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 5355 x 1.5%)/360 = $2.23
Day Two: (10 x 5364 x 1.5%)/360 = $2.24
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I.e. Total financing adjustment = $4.47
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DIVIDENDS
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If you have an open trade in a stock 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 opens 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, multiplied 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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Let’s say the GFT quote for Gold - September is 680.0 - 680.7.
It is June and the price of gold has been climbing, as speculators push the price higher and higher. You decide the rally still has further to go and check DealBook® 360 for our quote on Gold
GFT's Gold quote is based on the underlying futures contract.
You BUY 20 CFDs at 680.7:
Please note:
1. You are trading "per 0.1," i.e. if Gold moves from 680.0 to 681.0, it is 10 "ticks," or equivalent to a $200 move on a trade of 20 CFDs.
2. The base currency of the underlying Gold futures market is U.S. dollars, so this is the currency that in which you will be trading.
"Trading Per" values are shown on Order Tickets for easy reference.
This trade, if left, would expire, or close automatically, on 18 August.
For all market expiry dates, please see our Market Information Sheets.
By the beginning of July, the price has already risen through the $700 level, and GFT’s quote is 702.5 - 703.2.
You decide to close a portion of your position and SELL 10 CFDs at 702.5.
You thus realise a profit of (7025 - 6807) x your stake of 10 = $2180.
You leave the remaining 10 CFD to run until expiry of the market in August.
On this remaining 10 CFDs trade, you have realised a loss of (6807 - 6755) x 10 = $520.
Altogether, 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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Let’s say GFT’s quote for the AUD/USD forex CFD is .9380 - .9382
You believe the AUD will strengthen in relation to the USD, so you BUY 200,000 CFDs at .9382. This is equivalent to buying AU$200,000.
GFT’s FX CFDs are a special form of CFD which give you exposure to underlying exchange rates. However, 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 GMT) on rolling markets.
For forex CFD trades, 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 second currency |
p = |
rollover price (the GFT mid-price at 22:00 GMT that day, say .9385) |
r = |
differential of relevant overnight LIBOR rate of the first named currency and that of second named currency. Let's say that these are 6% and 4%, which is a 2% differential |
d = |
number of days, i.e. 360 |
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If the first currency has a higher interest rate, then you will be credited interest for holding a long position and debited interest for holding a short position.
If the first currency has a lower interest rate, you are debited interest for holding a long position and credited interest for holding a short position.
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So here, the adjustment would be equal to:
(200,000 x .9385 x 2%)/365 = $10.28
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The next morning, the AUD/USD opens lower than you had forecasted. You decide to close your trade, seeing that the current quote is .9368 - .9370, and SELL 200,000 CFDs at .9368.
A quick way to figure out potential profit is to think of the value of one "pip.” For example, for AUD/USD, each pip has a value of US$10.
Trade Summary:
BUY 20,000 FX CFDs
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In price
Out price
Finance adjustment
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.9382
.9368
10.28
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TOTAL LOSS
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(.9368 - .9382 -) x 200,000 + 10.28 = US$269.72
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Because profits and losses are calculated in terms of the second listed currency in the pair, you’d have to use the current AUD/USD exchange rate to calculate your profits in terms of Aussie dollars.
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| Example 5: Government Bond CFDs |
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The GFT quote for UK Gilt - September is 110.45 - 110.48.
Leading up to a busy week on the UK economic data calendar, you decide that you think the data will be hawkish for UK interest rates, and that the price of the benchmark UK government bond, or the "Long Gilt," will fall as a result
You sell 100 CFDs at 110.45.
By Friday it appears that the data has been relatively in line with market expectations. After trading within range all week, Gilt futures have now begun to rally.
The GFT quote is now 110.63 - 110.66. You decide it's time to cut your losses, as you buy 100 CFDs at 110.66, resulting in a loss of (11045 - 11066) multiplied by your stake of 100 = a loss of £2100.
GFT makes a market on several government bond futures. The market prices of government bond futures are closely linked to interest rates, as the bonds themselves are fixed income securities. Under 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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Since this is a UK bond, you are trading in the "base" currency of the underlying market, which is pounds in this example. To figure out your profit or loss in terms of Aussie dollars, you'd use the current pound/Aussie dollar exchange rate.
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| Example 6: GOLD |
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GFT’s quote for spot gold is 927.6 – 928.1
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 (see below).
Example: You believe that there is still much room for further rises in gold.
You BUY 20 CFDs at 928.1. The base currency of the underlying spot gold market is U.S. dollars, so this is what you will be trading in. Please note that you are trading “per 0.1,” so if gold moves from 928.1 to 929.1, that is 10 “ticks”’’ or equivalent to a US$200 move on a trade of 20 CFDs.
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 – 9281) x your stake of 10 = US$2200.
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; and GFT is quoting it at 922.6 – 923.1.
You SELL 10 CFDs to close out the position at 922.6.
This realises a loss of (9281 – 9226) x your stake of 10 = US$550
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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928.1
950.1
$2200
922.6
US$550
44.13
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TOTAL PROFIT
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US$1605.87
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Since gold is priced in US dollars, you’d use the current USD/AUD exchange rate to find your profit or loss in Aussie dollars.
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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 GMT.
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CD01A.007.051508
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WHAT ARE CFDS?
CFD TRADING EXAMPLES
GLOSSARY OF CFD TERMS