CFD Education covers all you need to know about trading Indices and Commodities. CFDs include such popular commodities as Oil and Gold, and Major Indices such as Dow Jones and DAX 30
CFD (Contracts for Difference) offers leveraged long/short trading on almost every financial instrument. It is an inexpensive trading option to trade the change of price in multiple commodity and equity markets, with leverage and immediate execution.
Ibrbroker.com offers a wide range of CFDs giving you access to commodity markets – such as Oil, Agriculture and Precious Metals – and worldwide equity markets indices – such as FTSE 100, Dow Jones 30, S&P 500 and Hong Kong Hang Seng Index.
|Oil||Dow Jones 30|
A CFD is a Contract agreed between you and your broker to exchange, at the closing of the contract, the Difference in price between the opening and closing price of the underlying instrument.This means that in CFD dealing, you do not physically buy or hold the underlying asset; you trade a contract whose value captures every change of the price of the underlying asset.
CFDs are dealt on a margin basis and you secure the transaction by paying a deposit. This means that when you open a position, you do not have to pay for its full value. Instead, you put up a deposit from 1% to 2% (depending on the contract’s margin requirement), which enables you to trade up to 100 times your initial capital (leverage of up to 100:1).You are required to keep funds in your account to cover the transaction amount of each CFD and any associated costs if the price moves unfavorably. The margin requirement must be maintained to keep your position open. Should the equity value of the account drop below the minimum margin requirement, additional funds must be added.
CFDs are traded in units that vary depending on the CFD itself. For example:
All units are set to a standardized quantity known as a “lot”. A lot represents the minimum quantity, which can be traded in any given instrument.CFDs are quoted as seen in the underlying market. So for example, stock indices and commodities are quoted and traded in their base currency. The FTSE100 CFD is quoted in Pounds and the S&P500 in Dollars.
When you leave a CFD position opened overnight, you pay or receive daily interest adjustments depending on whether you have a long or a short position. These adjustments represent the financing fees for IBR Broker to maintain your position opened.
The IBR Broker Financing Charge is 1.5% and overnight interest adjustments are calculated in accordance with the following formula:
Overnight rollover = (Interest Rate Differential – Financing Charge)/36000 x Base Value x Units per Lot x Relevant Exchange Rate.
Unless otherwise specified, the underlying instrument of a CFD has an expiration date. However, you should be aware that CFDs are not traded up until the exact expiration date of the underlying instrument. Instead, CFDs are rolled over to the next underlying Future Price during the last weekend (before the official expiration day). This is known as the expiration rollover.
If there would be any substantial price difference between the two Futures, an adjustment will be Credited or Debited from the balance of your account subject to the open position amount of the expiring CFD. This Adjustment will show up in your account under Rollover Charge and will not affect the real value of your Equity.
However, you should be aware that the switch between the two Future prices of the underlying CFD could involve a substantial price difference. Therefore, Entry Orders might be filled on Market rates rather then on the predefined rates.
If you do not want to incur the price adjustment or any implication of the underlying CFD rollover, you can close your position(s) and/or cancel Orders before the rollover date and open a new position afterwards. IBR Broker, at its best effort, will inform customers about any projected expiration of instruments by Popup, email, or through the site.
A IBR Broker Client’s Account is long 10 Dax 30 Futures CFDs at 5,700.
The price of the current Dax 30 Futures CFD (Expiry Dec 09) is EUR 5,710, making the client a profit of EUR 100 (10 lots x EUR 10).
The price of the next contract (Expiry March 10) is EUR 5,720, i.e. + EUR 10 over current month.
When IBR Broker roll over to the next month’s contract:
The price feed is changed to new contract; the client’s open position will now show a profit of EUR 200 (10 lots x [5,720-5,700]).
But the Client’s Account will be debited EUR 100 to compensate for changes in P/L due to the roll.
The net financial effect of the roll-over is zero.
Compiled below are several CFD trading examples. Please note that these are just examples; be aware that trading Forex and Contracts for Difference (CFDs) – like online futures trading – is speculative and involves significant risk.
You funded your IBR Broker Trading Account with a $2,000 initial deposit.
You are considering investing in the US Equity Market and below are the trading conditions of some US Equity CFD Indices:
|Instrument Name||Contract Size||Leverage (Approximately)|
USD interest rate is charged at 4.0%.
CFD Positions left open overnight incur a financing charge against the whole amount of the position at a rate of +/ -1.5%.
The US Non-Farm Payroll numbers come out worse than expected – unemployment rate is rising. This causes US stock markets to fall 2%.
You believe that stock market losses are overdone and that upcoming corporate earnings numbers will be better than expected, and decide now is a good time to go long on the US stock market. You decide that the S&P 500 CFD is your best choice since it encompasses a wide group of market leading companies, and buy 100 lots at $874.25.
Since you have bought 100 lots, an increase of 1 point in the S&P 500 index from 874.25 to 875.25 will earn a profit of $100, while a drop of 1 point from 874.25 to 873.25 will incur a loss of $100.
+ Opened Position: Buy 100 S&P Lots at 874.25 (Total purchase amount = $87,425)
+ Client Account Report
|Balance (USD)||Equity (USD)||Lots Open #||Used Margin (USD)||Usable Margin (USD)|
Your Assumptions are correct and corporate profits are better than expected as US companies were able to boost their earnings by cutting their expenses. On the next trading day, the S&P rallies over 3% to $901.50 where you close your position by selling your CFDs.
+ Closed Position: Sell 100 S&P Lots at 901.50 (Total sale amount = $90,150)
+ P&L Report:
|Open Long Position||$87,425||= 100 S&P lots bought at 874.25 (Total purchase amount = $87,425) on Friday, July 3|
|Overnight Financing||$26||1 lot of S%P 500 is $874.25 Financing Charge: 4.0% + 1.5% = 5.5% Daily interest charge: [874.25 x (4.0% + 1.5%)]/360 = $0.13, i.e 13 cents per lot each day Total interest charge:$0.13 x 100 lots x 2 days = $26|
|Sales Proceeds||$90,150||= 100 S&P lots sold at 901.5 on Monday, July 6.|
|Net Cost||$26||= Interest paid to maintain the CFD long position that was opened|
|Profit on Trade||$2,699||= Sale proceeds - Starting Value - Overnight financing = $90,150 - $87,425 - $26 = $2699|
wo days later, more poor economic data is published in the US and market sentiment turns negative. To capitalize on the downward correction in stocks, you decide to sell (go short) the Dow Jones (DJ 30) with the aim of buying it back cheaper in the short-term. On July 8, you sell 5 Lots of DJ 30 at a price of $8,180.00.
Since you have sold 5 Lots, every drop of one point in the DJ 30 will earn you $5, and every increase of one point will cost you $5.
+ Opened Position: Sell 5 Lots of DJ 30 at $8,180.00 (Total sale amount = $40,900)
Again, your strategy succeeds. Overnight the market drops lower and the next day, July 9, you buy back the 5 Lots of DJ 30 at $8,150, making a gross profit of $150 (5 lots x $30).
+ Closed Position: Buy 5 Lots of DJ 30 at $8,150 (Total purchase amount = $40,750)
+ P&L Report:
|Open Sell Position||$40,900||= 5 DJ 30 lots sold at $8,180 (Total sale amount = $40,900) on Wednesday, July 8.|
|Overnight Financing||$2.85||1 lot of DJ 30 is $8,180 Financing Charge: 4.0% - 1.5% = 2.5% Daily interest received: [$8,180 x (4.0% - 1.5%)]/360 = $0.57, i.e 57 cents per lot each day. Total interest received: $0.57 x 5 lots x 1 day = $2.85|
|Purchase Amount||$40,750||= 5 DJ lots bought at $8,150 on Wednesday, July 9.|
|Profit on Trade||$152.85||= Starting Value - Purchase Amount + Overnight Financing = $40,900 - $40,750 + $2.85 = $152.85|
PLEASE NOTE: the exact amount of interest to debit/ credit may vary each day depending on changes in any of the following factors: the underlying instrument price, central bank rates, margin rates and the individual CFD portfolio.