TRADING A DELL CFD EXAMPLE
Let us assume that Dell is currently trading at $19.29/19.30. You believe that due to a positive earnings figure, the stock will further appreciate to $20.00. You could buy the Dell stock at $19.30 or buy the CFD instead at $19.30 which requires less capital outlay.
Comparing the stock and CFD:
|
CFD |
Share |
Buy position |
19.30 |
19.30 |
Margin |
10% |
100% |
Value purchased |
$193,000 |
$193,000 |
Outlay required |
$19,300 |
$193,000 |
Let us assume Dell finally makes a move to $21.00. We hence choose to close our stock at this price and collect the difference..
Share
Profit/Loss : (Sell price – Buy price) x No. of shares
: (21.00 – 19.30) x 10,000 = $17,000
CFD
If the bid price stock is at $21,
Profit/Loss : (Sell price – Buy price) x No. of shares
: (21.00– 19.30) x 10,000
: $17,000
However, what is we are wrong, and Dell instead makes an adverse move to $17.60. Assume we take a loss at this point.
Share
Profit/Loss : (Sell price – Buy price) x No. of shares
: (17.60 – 19.30) x 10,000 =
: -$17,000
CFD
If the bid price stock is at $17.60,
Profit/Loss : (Sell price – Buy price) x No. of shares
: (17.60– 19.30) x 10,000
: -$17,000
|
CFD |
Share |
Initial investment |
$19,300 |
$193,000 |
Price($) |
21.00 |
17.60 |
21.00 |
17.60 |
Net P/L |
$17,000 |
-$17,000 |
$17,000 |
-$17,000 |
ROI |
83% |
-83% |
8.3% |
-8.3% |
