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Risk Warning
CFDs allow you trade trade long and short on the major market indexes. Below is an example of a long and short Index trade.
The Spread: Imagine the FTSE is quoted at '5539-5540'. This quote represents the bid/offer spread for the FTSE, and is only 1 point.
The Offer: The offer price of 5540 is the price at which you can buy FTSE contracts.
The Bid: The bid price of 5539 is the price at which you can Sell FTSE contracts.
Going Long: You believe that the FTSE will strengthen, and decide to BUY or 'go long' 250 FTSE contracts @ 5540 (the offer price).
Opening Buy: Customer BUYS 250 FTSE contracts @ 5540
| Quote (bid/offer) | 5538-5540 |
| Buy price | 5540 |
| Size of position | 250 X 5540 = £1,385,000 |
| Initial outlay (using 1% margin) | £13,850 |
Later: Your prediction is correct and the FTSE Index rises. The quote on the FTSE is now 5582-5583. You decide to close your FTSE position @ 5582 (the bid price).
Closing Sell: Customer SELLS 250 FTSE contracts @ 5582
| Quote (bid/offer) | 5582-5583 |
| Sell price | 5582 |
| Size of position | 250 X 5582 = £1,395,500 |
| Initial outlay (using 1% margin) | £13,955 |
Costs (at 5 basis points 0.05%) = £692.50 (entry trade) & £697.75 (closing trade)
Profit/Loss Calculation:
| Size of trade X (sell price - buy price) | profit or loss |
| 250 X (4482 - 4440) | £10,500 |
| Profit | £10,500 |
| Total costs | £1,390.25 |
By closing your position to realise a net profit of £9,109.75
This is obviously a favourable outcome, had the price moved against you would have incurred an equivalent loss. Prime CFDs strongly recommend the use of stop losses on every trade to mitigate potential downside.
The Spread: Imagine the S&P Index is quoted at '1212-1212.5'. This quote represents the bid/offer spread for the S&P, and is only ½ a point.
The Offer: The offer price of 1212.5 is the price at which you can BUY S&P contracts.
The Bid: The bid price of 1212 is the price at which you can SELL S&P contracts.
Going Short: You believe that the S&P will come down, and decide to SELL to 'go short' 1000 S&P contracts @ 1212 (the bid price).
Opening Sell: Customer Sells 1000 S&P contracts @ 1212
| Quote (bid/offer) | 1212-1212.5 |
| Sell price | 1212 |
| Size of position | 1000 x 1212 = USD 1,212,000 |
| Initial outlay (using 1% margin) | USD 12,120 |
Later: Your prediction is correct and the S&P Index falls. The quote on the S&P is now 1189.5-1190. You decide to close your S&P position @ 1190 (the offer price).
Closing BUY: Customer Buys 1000 S&P contracts @ 1190
| Quote (bid/offer) | 1189.5-1190 |
| Buy price | 1190 |
| Size of position | 1000 x 1190 = USD 1,190,000 |
| Profit/Loss | USD 22,000 |
Costs (at 5 basis points) = USD 606 (entry trade) & USD 595 (closing trade)
Profit/Loss calculation:
| Size of trade X (sell price - buy price) | profit or loss |
| 1000 X (1212 - 1190) | USD 22,000 |
| Profit | £13,750 ($22,000/1.60) |
| Total costs | £750.63 ($1201/1.60) |
By closing your position to realise a net profit of £12,999.37
This example shows a favourable outcome, had the price moved against you would have incurred a loss. Prime CFDs recommend the use of stop losses on every trade to mitigate potential downside. For further information on Index CFD Trading please call the trading desk on +44 (0) 20 7220 4300
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Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily a guide to future performance. Trading in these markets is generally considered to be suitable only for the more experienced investor as it carries a high degree of risk. An investor may not receive back the amount of their original investment and in certain circumstances may be liable for a sum that is greater than their original investment. If in any doubt, please seek independent financial advice.