ETFs
Example #1. Buy ETFs with Stocks (long position; Oil)
Opening position
On May 3rd of 2009, the shares of the "Power Shares DB Oil Fund" ETF are trading at 21.5 (bid) / 22.5 (ask) USD per share. These shares are listed in the New York Stock Exchange-ARCA. The ETF tracks the Spot price of crude oil in USD. The spot price of one barrel of crude oil is at 50 USD per barrel.
An investor decides to open a long position on crude oil, since he/she expects a rise in price. For this reason, he/she decides to buy 2,100 shares of the "Power Shares DB Oil Fund" ETF, making a total investment of 47,250 USD (2,100 shares x 22.5 USD per share).
Closing position
Imagine that on September 18th of 2009, the spot price of a barrel of crude oil is trading at 40 USD and the "Power Shares DB Oil Fund" ETF is trading at 17.2 (bid) / 18.2 (ask) USD per share. Note that since the ETF tracks exactly the underlying asset, its price fell 20%. Since the investor does not want to incur in additional losses, he/she decides to sell his 2,100 shares for a total value of 36.120 USD (2,100 shares x 17.2 USD per share).
Trade summary
Example #2. Buy ETFs with Stocks (long position; Gold)
Opening position
On May 3rd of 2009, shares of the "i-Shares - ETF Physical Gold" ETF are trading at 9.25 (bid) / 9.28 (ask) USD per share. These ETF shares are listed in the New York Stock Exchange-ARCA. The ETF tracks Spot gold price in USD. The spot price for one ounce of gold is at 900 USD (US Dollars).
An investor decides to open a long position on Gold, since he/she expects a Gold price rise. Thus, he/she decides to buy 10,000 shares of the "i-Shares - ETF Physical Gold" ETF, which requires an investment of 92,800 USD (10,000 shares x 9.28 USD per share).
Closing position
Imagine that on July 28th of 2009, the Spot price of an ounce of gold is at 940 USD. On the same date and time, the ETF "i-Shares - ETF Physical Gold"ETF shares are trading at 9.66 (bid) / 9.69 (ask) USD per share. The ETF tracked precisely the price of gold, i.e. went up 4.4%. The investor sold all ETF shares, representing a cash inflow of 96,600 USD and a profit of 3,800 USD.
Trade summary
Example #3. Sell ETFs with CFDs (short position; US Treasury Bonds)
One of the main advantages that negotiation with CFDs presents, is the possibility of operating with only a small percentage of total investment.
Opening position
On May 3rd, the CFD with ETF "iShares-Barclays 20+ year Treasury Bond Fund" shares as the underlying asset are trading at 97.0 (bid) / 97.5 (ask) USD per share.
The ETF asset allocation is 100% on US Gov't Treasury Bonds with a maturity of 20 or more years. The inflation expectations, US Gov't fiscal policy and monetary policy set by the Federal Reserve are the main factors that determine price direction of these US Gov't Treasury Bonds.
An investor decides to open a short position on US Gov't Treasury Bonds, since he/she expects these Bonds price to fall.
In order to do so, sells 1,025 shares at 97.0 USD each share, an exposure of 99.425 USD (1,025 shares x 97.0 USD). In order to open this position, the investor needs to deposit 9.943 USD, a margin of 10 % (99,425 USD x 10 %).
Closing position
Imagine that on July 18th, the investor's expectations were correct, in result of the Federal Reserve decision on early June to increase the interest rates.
As a consequence, the price of US Gov't Treasury Bonds has fallen. The ETF "iShares Barclays 20 + year Treasury Bond Fund" shares are trading at 90.0 (bid) / 90.5 (ask) USD per share.
Thus, the investor decides to close his position by selling his 1,025 shares and profits 6,662.5 USD [1,025 shares x (97.0 - 90.5)].
Interest calculation
With short positions on CFDs the investor is entitled to receive interests. The investor holded a short position during 45 days. The daily interest is 5.44 USD (99,425 x 2% x 1/365), thus the investor is entitled to receive 245 USD (5.44 USD x 45 days) as interest.
Trade summary
