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Market Analysis Guide
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Video Tutorials
- Intro
- Alpari Research: Technical Reports
- What is Forex and How Does It Work?
- Introduction to Charting
- Introduction to Technical Analysis
- Risks
- Using Technical Indicators
- Introduction to Fundamental Analysis
- Gold and Silver
- Money Management
- Position Sizing
- Understanding and Trading the News
- Earning Interest in Forex
- Introduction to Fibonacci Analysis
- Economic Indicators
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Autochartist
- Glossary
What are CFDs?
Going Long
You decide to purchase Microsoft shares, which are quoted at 23.97/24.00, so you buy 100 shares at the offer price of $24.00:
| Price of Microsoft share | $ 24.00 |
| Number of shares | 100 |
| Number of lots (1.0 lot = 100 shares) | 1.0 |
| Deal size | $ 2,400.00 |
| Commission (0,1%) | - $2.40 |
| Margin (10%) | $240.00 |
To fund this position you will need $242.40 (Margin + Commission).
Overnight Financing
Credit settlements are required when you leave your position open until the end of the trading session. Credit settlements are calculated based on FED funds rate (for US Stocks) and the closing price of the share.
For example: FED Funds rate is 1.75%, Alpari's markup is 1.25% and the closing price of Microsoft shares is $25.00. Your credit settlement is calculated the following way:
| N_Stocks x P_Close x Interest / N_Days = |
| = 100 x $25.00 x (1.75% + 1.25%) / 360 = |
| = $0.21 |
When you leave your position open from Friday to Monday, the deducted amount will be three times higher.
Closing a position
Three days later Microsoft shares are quoted at $25.50/25.53, and you chose to close your position by selling at $25.50:
| Price of Microsoft share | $25.50 |
| Number of shares | 100 |
| Number of lots (1.0 lot = 100 shares) | 1.0 |
| Deal size | $2,550.00 |
| Profit | + $150.00 |
| Commission (at closing there is no commission) | $0.00 |
| Credit settlements (3 days) | - $0.63 |
| Profit less commission and on-credit expenditures | +$146.97 (= + 150.00 - 2.40 - 0.63) |
So, you have a return of 60% on your initial investment.
Read more:
Risk warning
This example shows a favourable outcome. If the share price had moved against you, you would have realised a loss, not a profit, and with leverage, this loss would be magnified. For example, if you closed the position at 22.50, your loss would be $ 153.03.
Any questions?
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