Long Trading Example

‘Going long’ is simply buying a CFD position 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 identical CFD and share trades. This comparison illustrates the similarities between CFDs and shares while highlighting the fact that CFDs have the ability to greatly increase ROI.

Amy and Steve purchase 500 BHP Billiton shares, the shares are currently trading at $40 a traditional share position would require an outlay of $20,000. BHP CFDs have a margin rate of 7%, the margin required to open the position is $1,400. Steve opens a $20,000 share position and Amy opens a $20,000 CFD position. Both traders are charged 0.10% commission.

The table on the following page illustrates the outcome for both Amy and Steve if the underlying price of BHP rises to $41.00 the following day.

 

*Financing is calculated at the closing market price of $40.50.

Note: If the price of BHP had fallen by $0.50 Amy would have incurred a loss of $543.69.

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