‘Going long’ is simply buying a CFD position in to profit from a share price increase. The difference between the entry price and the exit price is the profit or loss that is made on the trade. The example below compares the Return on Investment (ROI) on an identical CFD and share trade.
Amy and Steve purchase 1,000 BHP Billiton shares which are currently trading at $28.00. A traditional share position would require an outlay of $28,000. The margin rate on BHP is 7% therefore the margin required to open an equal CFD position is $1,960. Both Steve and Amy open a $28,000 position and both traders are charged 0.10% commission.
The table below compares the costs and ROI of the CFD and Share trade if the underlying price of BHP rose to $29.00 the following day.
"Going Long" $28,000 exposure to BHP
|
CFDs
| |
Shares
|
| | Amy | | Steve |
Opening Purchase Price | | $28.00 | | $28.00 |
Buy Quantity | | 1,000 | | 1,000 |
Margin Requirement | | $1,960.00 | | - |
Commission Paid | 0.10% | $28.00 | 0.10% | $28.00 |
GST | | $0 | | $2.80 |
Total Exposure | | $28,000 | | $28,000 |
Total Outlay | | $1,988.00 | | $28,030.80 |
“Closing - Selling” $29,000 exposure to BHP CFDs Shares |
Closing Sales Price | | $29.00 | | $29.00 |
Quantity sold to close portion | | 1,000 | | 1,000 |
Commission | 0.10% | $29.00 | 0.10% | $29.00 |
GST | | $0 | | $2.90 |
Total outlay | | $2,017.00 | | $28,059.80 |
Financing charges 6.75% (RBA rate 2.5 %)/365 | | $5.18 | | $0 |
Profit from trade | | $1,000.00 | | $1,000.00 |
Net Profit | | $937.80 | | $937.30 |
Return on Investment | |
46.50% | | 3.34% |
If the underlying share price of BHP decreased by $1.00 and the position was closed Amy would have incurred a loss of $1,062.18.