The best way to understand how CFDs work is to follow some examples.
CFD Example: Selling Wall Street
Assume you want to buy 1000 Vodafone CFDs and the exchange price stands at 135.7-135.8p. Our price for Vodafone might be 135.6-135.9, so your CFD position will be opened at the upper price of 135.9p. The full contract value of this position is 1000 x 135.9p or £1359, but to open the contract you need only put down a margin deposit.
Your minimum margin for this position will be 3% of the full contract value, which is £40.77. The margin required will vary depending on how close you set your stop level to your opening level. All InterTrader.com CFDs have a stop loss order attached to help mitigate losses should the market move against you. If you do not set your own stop level on opening, a stop loss order will be created automatically for you. (Note that stop loss orders are not guaranteed unless you specified to have your trade guaranteed.)
While your position is open you will also be debited or credited overnight financing and you will receive or pay any dividends should Vodafone go ex-dividend. (For more information on these financing charges see CFDs in Detail)
Suppose a fortnight later Vodafone shares have risen steadily and the underlying price now stands at 154.3-154.4p. Our price for Vodafone might be 154.2-154.5, so you can close your CFD position by selling at the lower price of 154.2p. Your profit is calculated by subtracting your opening price from your closing price and multiplying this figure by 1000 CFDs, so: 154.2p – 135.9p = 18.3p x 1000 shares = £183.
To calculate your net profit you should add or subtract any overnight financing and dividend adjustments.
Example: Selling Wall Street
Suppose you want to go short of Wall Street. Our quote has a 2 point dealing spread and might be 10463-10465. This means that you can sell at 10463, the lower end of our quote. One CFD contract on Wall Street is worth $1 per index point. You want to risk $3 per point so you sell three CFD contracts at 10463.
As with all trades your position will have an automatic stop loss order attached. For our Wall Street contracts the minimum margin requirement is 50, so the minimum funds required to open this position is $150. There is no commission to pay as all the charge is included in the dealing spread.
While your position remains open you will have overnight financing and dividend adjustments applied to your account. (For more information on overnight financing charges see CFDs in Detail)
A week later our quote for Wall Street has fallen to 10427-10429 and you decide to take your profits. You close your position by buying three contracts at the upper price of 10429. Your gross profit is calculated by subtracting your closing price from your opening price and multiplying this figure by $3 per point, so: 10463 – 10429 = 34 points x $3 per point = $102.
To calculate your net profit you should also add or subtract your accumulated overnight financing and any dividend adjustments.