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Detailed CFD Example: Selling SingTel
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For the active trader, stock markets have one major disadvantage: it is not easy to go short. When you trade CFDs, it is as easy to go short as to go long.
This example shows how you can use a CFD to sell a share short, and also contains details of how dividends and interest rate adjustments work. |
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It is July and SingTel is quoted at $2.32/2.33. You decide to sell 25,000 shares as a CFD at $2.32, the bid price. Your initial outlay is just 10% x 25,000 shares x $2.32 = $5800.
You pay the 0.25% commission to open this position, which comes to $145 (25,000 shares x $2.32 x 0.25%) (see contract details).
Because you have taken a short position, your account is credited to reflect interest adjustments and debited to reflect any dividends. |
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The interest credit on your position is calculated daily, by applying the applicable interest rate to the daily closing value of the position.
In this example, the applicable interest rate might be 3.0% and the closing price of the shares on a given day might be $2.39. So the closing value for this day would be $59,750 (i.e. 25,000 shares x $2.39) and your interest credit would be $5 (i.e. $59,750 x 3.0% / 360).
Interest adjustments are calculated daily and posted to your account on a weekly basis.
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In August your position is still open at the SingTel ex-dividend date. The amount of the cash dividend is 6c per share and this is debited from your account to reflect the cost of a short position, as follows:
25,000 shares x 6c = $1500
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By late September, SingTel has fallen to $2.02/2.03 and you decide to take your profit and close your position. You buy 25,000 shares at $2.03, the offer price. The commission on the transaction is 0.25% or $126.88 (25,000 shares x $2.03 x 0.25%). Your profit on the trade is calculated as follows:
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Opening level |
$2.32 |
Closing level |
$2.03 |
Difference |
$0.29 |
Profit on trade: $0.29 x 25,000 = $7250 |
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Calculating the overall result
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To determine the 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 75 days, earning a total interest credit of, say, $350. You have been debited a dividend adjustment of $1500.
The overall result of the trade is a profit, calculated as follows:
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Profit on trade |
$7250 |
Commission |
-$271.88 |
Interest adjustments |
$350 |
Dividend adjustment |
-$1500 |
Overall profit |
$5828.12 |
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