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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 Short
Let's assume that American Express (AXP) shares are overpriced and you decide to sell 200 American Express shares as a CFD. They are quoted at $3.90/33.94 and you sell 200 AXP shares at $33.90 as a CFD.
| Price of American Express share | $33.90 |
| Number of shares | 200 |
| Number of lots (1.0 lot = 100 shares) | 2.0 |
| Deal size | $6,780.00 |
| Commission (0,1%) | - $6.78 |
| Margin (10%) | $678.00 |
To fund this position you will need $684.78.
Overnight Financing
Credit settlements are required when you leave your position open until the end of the trading session. Credit settlements are calculated with regard to 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 the AXP share is $33.10. So, your trading account will be credited as follows:
N_Stocks x P_Close x Interest / N_Days =
= 200 x $33.10 x (1.75% - 1.25%) / 360 =
= $0.09
When you leave your position open from Friday to Monday, the credited amount will be three times higher.
Closing a position
Seven days later AXP shares are quoted at $33.36/33.40 and in the rising market you make a decision to close the position by buying 200 AXP shares at $33.40 as a CFD.
| Price of American Express share | $33.40 |
| Number of shares | 200 |
| Number of lots (1.0 lot = 100 shares) | 2.0 |
| Deal size | $6,680.00 |
| Profit | + $100.00 |
| Commission (at closing there is no commission) | $0.00 |
| Credit settlements (7 days) | + $0.63 |
| Profit less commission and on-credit expenditures | + $93.85 |
So, you have a return of 14% on your initial investment.
Risk warningThis 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 34.40, your loss would be $ 107.41
More about risks
Read more:
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