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CFDs

Example #1. Buy Endesa shares with CFDs (long position)

One of the main advantages that negotiation with CFDs presents, is the possibility of operating on margin. Next you will see an example that also includes the adjustments needed for dividends and interest.

Opening position
On April 1st, Endesa is trading at 13.99 (bid)/14.00 (ask) Euros.  Imagine you decide to purchase on April 1st 2,000 shares at 14.00€. Your purchase would ascend to 28,000€, which is the result of multiplying 14.00€ x 2,000 shares. In order to open this position you need to deposit 2,800 € (14.00 € x 2,000 shares x 10%), which is the margin required.

Dividends Calculation
When you hold a long position on CFDs, with a Corporate Share as the underlying asset, dividends are credited in your account and in case of a short position they are charged in your account.

Imagine that on April 17th, the company pays a dividend of 0.6€ per share. Therefore, your account is credited with 1,200 € (0.6 € x 2,000 shares). 

Closing position
On May 1st, Endesa is trading at  15.30 (bid)/15.31 (ask) Euros and you decide to close your position of 2,000 shares. In order to close it, you sell your 2,000 shares at a price of 15.30 Euros per share and pocket the gains.

Interest calculation
When you hold a long position on CFDs you pay interest and in case of a short position you receive interest.

The interest is calculated on a daily basis, by applying an interest rate on the notional of the trade for the period between the open date and close date of the position.

In this example, if the corresponding interest rate was 3 %, interest payments per day would be 2.34€ [(1/360 x 2,000 shares x 14.00€) x 3%].

Trade Summary

Example #2. Sell Telefonica shares with CFDs (short position)

One of the main advantages that negotiation with CFDs presents, is the possibility of operating with short positions (short selling). Next you will see an example that also includes the adjustments needed for dividends and interest.

Opening position
In early January, Telefónica is trading at 15.00 (Bid) / 15.01 (Ask) Euros per share. On March 10th, you decide to open a short position by selling 3,000 shares at 15.00 € (bid price) each using CFDs. In order to open this position, you needed to deposit 4,500 Euros, which corresponds to 15.00 € x 3,000 shares x 10 %, the margin required for this operation.

Interest and dividends
When you hold a long position on CFDs you pay interest and in case of a short position you receive interest.

When you hold a long position on CFDs, with a Corporate Share as the underlying asset, dividends are credited in your account and are charged in your account in case of a short position.

Interest calculation
The interest is calculated on a daily basis, by applying an interest rate on the notional of the trade for the period between open date and close date of the position. In this example, if the corresponding interest rate was 0.95%, interest receipts per day would be 1.17€ (3,000 shares x 15.00€ x 0.95% x 1/360).

Dividends Calculation
Imagine that on April 3rd, Telefonica pays a dividend of 0.2 € per share. In this case, your account would be charged with 600 € (0.2 € x 3,000 shares).

Closing position
On May 10th, Telefonica is trading at 13.49 (bid)/13.50 (ask) Euros and you decide to close your position of 3,000 CFDs shares at a price of 13.50€ and pocket the gains.

Trade summary

Example#3. Sell IBEX-35 Index with CFDs (short position)

One of the main advantages that negotiation with CFDs presents, is the possibility of operating with short positions (short selling).

Opening position
In early January, you own a portfolio of Corporate Shares valued at 85,000 Euros, all listed on Spanish Stock Exchange. Your expectations are bearish, i.e. you expect a market fall that will affect negatively your portfolio value.

The IBEX-35 Index is trading at 8,500 (bid) 8,505 (ask) points. Your portfolio is valued at 85,000 Euros, in order to hedge it against a market fall, you decide to sell 10 Indices (85,000 ÷ 8,500 = 10) using CFDs, with IBEX 35 Index as the underlying asset. In order to open a position you need to deposit 4,250 €  which corresponds to 8,500 € x 10 contracts x 5 %, margin required for opening a position.

Interest calculation
With long positions, interest is charged in your account; In case of short positions, interest is credited on you your account, which is the case for this example.

The interest is calculated on a daily basis, by applying an interest rate on the notional of the trade for the period between open date and close date of the position.

In this example, if the corresponding interest rate was 1%, interests received per day would ascend to 2.36€ (85,000 Euros x 1 %/360).

Closing position
45 days later, your expectations were correct and the market has fallen, reducing the value of your portfolio to only 70,000 € (with a loss of 15,000 €). The IBEX 35 Index is trading at 6,495 (bid) / 6,500 (ask) points. You decide to close your position by buying 10 Indices at 6,500 points and pocket the gains.

Trade summary 

Example #4. 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

Example #5. Buy Oil with CFDs (long position)

Opening position
You can purchase barrels of Crude Oil directly with CFDs without having to use an ETF as the underlying asset. Instead you can use a CFD with a Futures contract as the underlying asset.

On May 14th of 2009, the CFD with a Futures contract for Crude Oil with expiration on June 09 named "US Crude, Jun 09" as the underlying asset is trading at 54.96 (bid) / 55.00 (ask) USD per barrel.

An investor decides to open a long position in crude oil, expecting that price will go up. For this reason he decides to buy 500 Barrels of "US Crude, Jun 09" with CFDs, totalling 27,500 USD (500 Barrels x 55.00 USD per barrel). The margin required to open this position is 2,750 USD (10% margin).

Closing position
Imagine that on July 18th of 2009 the spot price per barrel of Crude Oil is 60 USD and the CFD with Futures contract "US Crude, Jun 09" as the underlying asset is trading at 59.95 (bid) / 70.02 (ask) USD per barrel. You decide to close your position and make a profit.

Trade summary