City A.M. Trading

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  1. What is a CFD
  2. Benefits of CFDs
  3. CFD Trading Example
  4. Our CFD Service
  5. Range of Markets
  6. CFD Costs
  7. CFD FAQs
  8. Risk Warning Notice

CFD Trading Example

A CFD offers you all the benefits of trading shares without having to physically own them. Simply put, it is a contract that mirrors the performance of an underlying instrument. It is traded on margin, and just like physical shares your profit or loss is determined by the difference between the price you buy at and the price you sell at.

CFDs work in a very similar way to Spread Betting and are also a flexible and cost effective way to trade a wide range of financial markets. CFD means Contract for Difference and just like other investments your profit or loss is determined by the difference between your buy price and your sell price.

The best way to explain how CFDs work is through an example:

Example of going short

  1. ABC Corp is trading at 1599/1600 and you think the price is going to fall in value.

  2. You decide to sell ABC corp CFDs at 1599.

  3. You decide to trade 1000 shares. You sell 1000 CFDs at 1599 giving you a position size of £15990. 1000 x 1599 = £15990

  4. Equity CFDs attract a commission charge of 8 basis points. A basis point is 1/100th of a percent. To determine how much commission you would pay, you multiply your position size by commission charge. In this example the charge is £12.79. £15990 x 0.08%=£12.72

  5. Your margin requirement with City A.M. Trading for ABC Corp is 5% therefore £799.50 will be allocated from your account against this trade as initial margin. Remember if the share price moves against you, it is possible to lose more than this £799.50 initial margin.

  6. Two days later you see that ABC Corp has fallen to 1578/1579p

  7. Therefore you choose to buy CFDs in ABC Corp at 1579 and realise your profit. The commission charge of 8 basis points also applies to the closure of the trade, equaling £12.63

  8. You sold at 1599 and bought at 1579 which means ABC Corp fell by 20 pence. 20 pence x 1000 CFDs = £200 revenue.

  9. You held the CFD position for two days, and because you went short you were effectively loaning us money so you receive two nights financing charge. This is how you calculate the financing you will receive;
    £15990 (value of the position) x Libor - 3% (which in this instance = 2%) /365 (number of days in the year) x 2 (number of days position is held)
    = £1.75

  10. Therefore you add the financing payment to the revenue, and deduct the commission charges and realise a profit of £176.33

However, if the market had risen you would have made a loss, for example:

  1. ABC Corp is trading at 1599/1600p and you think the price is going to fall in value.

  2. You decide to sell ABC corp CFDs at 1599

  3. You decide to trade 1000 shares. You sell 1000 CFDs with the value of £15990.

  4. Equity CFDs attract a commission charge of 8 basis points. A basis point is 1/100th of a percent. To determine how much commission you would pay, you multiply your position size by commission charge. In this example the charge is £12.79. £15990 x 0.08%=£12.72

  5. Your margin requirement with City A.M. Trading for ABC Corp is 5% therefore £799.50 will be allocated from your account against this trade as initial margin. Remember if the share price moves against you, it is possible to lose more than this £799.50 initial margin.

  6. Two days later you see that ABC Corp has risen to 1618/1619

  7. Therefore you choose to buy CFDs at 1619 and realise your loss. The commission charge of 8 basis points also applies to the closure of the trade, equaling £12.95

  8. You sold CFDs at 1599 and bought at 1619 which means ABC Corp rose by 20 pence. 20 x £10 = £200 loss.

  9. You held the CFD position for two days, and because you went short you were effectively loaning us money so you receive two nights financing charge. This is how you calculate the financing you will receive;
    £15990 (value of the position) x Libor - 3% (which in this instance = 2%) /365 (number of days in the year) x 2 (number of days position is held)
    = £1.75

  10. Therefore you deduct the financing payment and add the commission charges to the negative revenue and realise a loss of £223.92

*Rates based on daily cash rate, this rate is subject to daily market fluctuations
** City A.M. Trading reserve the right to amend this rate with prior notice.