Bonds
Example #1. Buy Bonds with Stocks (long position)
Opening position
On May 3rd, the ETF "iShares-Barclays 20+ year Treasury Bond Fund" shares are trading at 96.5 (bid) / 97.0 (ask) USD per share.
The ETF assets are 100% allocated in US Treasury Bonds with a maturity of 20 or more years.
An investor decides to open a long position on US Treasury Bonds. For this reason, he/she buys 1,000 shares of the ETF "iShares" ETF shares "Barclays 20 + year Treasury Bond Fund" at 97 USD each. The investment totals to 97,000 USD (1,000 shares x 97 USD).
Closing position
On July 18th, Imagine that the investor predictions were wrong, in early June the Federal Reserve decided to increase interest rates, as a consequence, the Bond price has fallen. The ETF "iShares Barclays 20 + year Treasury Bond Fund" shares fell to 90.0 (bid) / 90.5 (ask) USD per share.
The investor decides to close his position in order to minimize losses, by selling all ETF shares. The investor's losses are 7,000 USD [1,000 shares x (90.0 - 97.0)].
Trade summary
Example #2. Sell Bonds with CFDs (short position)
One of the main advantages that CFDs present is the possibility of operating with only a small percentage of the total investment.
Opening position
On May 3rd, the CFD with ETF "iShares-Barclays 20+ year Treasury Bond Fund" shares as the underlying asset is trading at 97.0 (bid) / 97.5 (ask) USD per share. This ETF invests in US Government Treasury Bonds with a maturity of 20 or more years from the date of today (20 +).
As an investor you expect the Bond price to fall and decide to open a short position. For this reason, you decide to sell 1,000 ETF "iShares-Barclays 20 + year Treasury Bond Fund" shares for 97 USD each. This means that your exposure is 97,000 USD (1,000 shares x 97 USD) and the margin required is 10 %. Therefore, to have this position, you need to deposit 9,700 USD (97,000 USD x 10 %).
Closing position
Imagine that on July 18th, your predictions were correct and that, in early June, the Federal Reserve decided to increase interest rates. For this reason, Treasury Bond prices have fallen. The ETF shares of "iShares Barclays 20 + year Treasury Bond Fund" are trading at 89.5 (bid) / 90.0 (ask) USD per share.
You decide to close your position making a profit of 7,000 USD (1,000 shares x (97.0 - 90.0) USD)
Interest calculation
Imagine that investor had the position opened during 45 days. In this example, since it is a short position, if the corresponding interest rates were 2 %, the investor would receive 240 USD ((97,000 USD) x 2% x 45/360)).
Trade summary
Example #3. Buy Bonds with Futures (long position)
Futures contract on Treasury Bonds (US Bond Federal Reserve) named "30-year U.S. T-Bond, Sep 2009" is traded on GLOBEX Exchange in New York and has the following characteristics:
Contract size: 1000 points
Contract currency: USD
Required margin: 4,860 USD
Maintenance margin: 3,600 USD
Contract expiration: 21-09-2009
Opening position
The Futures contract with "30-year U.S. T-Bond, Sep 2009" with T-Bond as the underlying asset that expires on May 11th of 2009 is trading at 121.16 (bid) / 121.18 (ask). The Futures prices are affected by increases or decreases of the Bond price that are particularly affected by monetary policy (i.e. interest rates) set by Federal Reserve.
An investor expects Bond prices to rise. Therefore he/she decides to open a long position on May 11th and buy 3 contracts for 121.18 USD each. His exposure is 364,000 USD (3 contracts x 1000 x 121.18 USD).
Closing position
The investor decides to hold his position until maturity. At expiration date, as predicted, the price of Bonds has risen and the Futures "30-year U.S. T-Bond, Sep 2009" contract is trading at 122.18 (bid) / 122.20 (ask) USD.
Trade summary
