Example: Buying Westpac Banking Corp
Trade at the market price and pay just an initial deposit to open your position, plus a small commission. It's that simple...
Opening the position
It’s September 2011 and Westpac is quoted in the market at $19.28/19.30. With IG Markets you can trade in either direction at the market bid-offer price.
You decide to buy 1,000 shares as a CFD at $19.30, the offer price. Your initial outlay is just 5% x 1,000 shares x $19.30 = $965. The same outlay with a regular stockbroker would only give you exposure to the performance of 50 shares.*
Our standard commission rate on this transaction is just 0.1% or $19.30 (1,000 shares x $19.30 x 0.1%) (see Contract Details). While your position remains open, your account is debited to reflect interest adjustments and credited to reflect any dividends.
Closing the position
Three days later, Westpac has climbed to $20.58/20.60 in the market and you decide to take your profit. You sell 1,000 shares at $20.58, the bid price. The commission on this transaction is 0.1% or $20.58 (1,000 shares x $20.58 x 0.1%).
Your gross profit on the trade is calculated as follows:
Gross profit on trade
| Closing level | $20.58 |
| Opening level | $19.30 |
| Difference | $1.28 |
Profit: $1.28 x 1000 = $1,280
Of course, had the market moved in the opposite direction, you would have made a loss that may have exceeded your initial deposit of $965. To calculate the overall result on the transaction you would also have to take into account the commission you have paid and the interest and dividend adjustments. Our example of selling a CFD includes these charges and adjustments.
*Please note that trading CFDs is a geared investment strategy, carrying a high risk to your capital. Only trade with money you can afford to lose. Please see our Risk Warning for more details.
Detailed Example: Selling AMP Ltd
For the active trader, stock markets have one major disadvantage: it is not easy to go short on shares. When you trade CFDs it is just as simple to go short as it is to go long.
Opening the position
It is August 2011 and AMP Ltd is quoted in the market at $4.60/4.61. With IG Markets you can trade in either direction at the market bid-offer price.
You decide to sell 5000 shares as a CFD at $4.60, the bid price. With a 5% margin requirement, you can open this position with a deposit of just $1,150 ($4.60 x 5000 shares = $23,000 position value. $23,000 x 5% margin requirement = $1,150), rather than paying the entire value of the position.
Our standard commission rate is 0.1%, which means you pay a commission of $23 (5000 shares x $4.60 x 0.1%); see Contract Details.
In most cases, because you have a short position, your account is credited to reflect interest adjustments and debited to reflect any dividends.
Interest adjustments
The interest credit on your position is calculated on its daily closing value, using the applicable interest rate.
In this example, the applicable interest rate might be 1.1%pa and the closing price of the shares on a given day might be $4.50. So the closing value for this day would be $22,500 (i.e. 5000 shares x $4.50) and your interest credit would be $0.69 (i.e. $24,050 x 1.1%pa / 360).
Interest adjustments are calculated daily and posted to your account on a daily basis.
Dividend adjustment
In September your position is still open at the AMP Ltd ex-dividend date. The amount of the cash dividend is 15c per share and this is debited from your account to reflect the cost of a short position, as follows:
5000 shares x 15c = $750
Closing the position
By early October 2011, AMP Ltd has fallen to $3.75/3.76 in the market and you decide to take your profit and close your position. You buy 5000 shares at $3.76, the offer price. The commission on the transaction is 0.1% or $18.80 (5000 shares x $3.76 x 0.1%).
Your gross profit on the trade is calculated as follows:
Gross profit on trade
| Closing level | $4.60 |
| Opening level | $3.76 |
| Difference | $0.85 |
Profit: $0.85 x 5000 = $4,250
Calculating the overall result
To determine the net or overall profit on the transaction you also have to take account of the commission you have paid and all the interest and dividend adjustments. In this case you might have held the position for 65 days, earning a total interest credit of, say, $48. You have been debited a dividend adjustment of $750.
The net result of the trade is a profit, calculated as follows:
Net profit
| Gross profit on trade | $4250 |
| Commission | -$41.80 |
| Interest adjustment | $48 |
| Dividend adjustment | -$750 |
| Net profit | $3506.20 |
Of course, had the market moved in the opposite direction, you would have made a loss that may have exceeded your initial deposit of $1,150.
Please note that trading CFDs carries a high level of risk to your capital. Please see our Risk Warning for more details.