A Long Trade

Below is an example of an opening trade in Reuters. The first investor is buying traditional shares, the second is using CFD's.

Trade 1: Result Profit
Opening Trade Buying Shares Buying a CFD
Price of Reuters 500p 500p
Number of Shares 2000 2000
Value of Position £10000 £10000
Stamp Duty (0.5%) £50 NIL
Commission £100 (1%) £50 (0.5%)
Deposit Required £10,000 £500

After 5 days both investors sell their Reuters shares and make a profit.

Closing Trade Selling Shares Selling a CFD
Price of Reuters 515p 515p
Number of Shares 2000 2000
Value of Position £10300 £10300
Commission £103 £51.50
Financing Charges * NIL £5.48
Net Profit £50 £193.02
Return on Equity 0.47% 38.60%
Trade 2: Result Loss
Opening Trade Buying Shares Buying a CFD
Price of Reuters 500p 500p
Number of Shares 2000 2000
Value of Position £10000 £10000
Stamp Duty (0.5%) £50 NIL
Commission £100 (1%) £50 (0.5%)
Deposit Required £10,000 £500

After 5 days both investors sell their Reuters shares and make a loss.

Closing Trade Selling Shares Selling a CFD
Price of Reuters 490p 490p
Number of Shares 2000 2000
Value of Position £9800 £9800
Commission £98 £49
Financing Charges * NIL £5.48
Net Loss £448 £304.48
Return on Equity -4.48% -60.80%

* position held over 5 nights

The CFD investor has paid a standard financing charge of £5.48 for holding the position. Interest is charged on an overnight basis therefore in this example: £10,000 x 4.0% (LIBOR + 2.75%) ÷ 365 over 5 days = £5.48. Commission is charged as a percentage of the total value of a trade.

If the CFD investor takes a short position, they may receive interest in a similar fashion based on LIBOR - 2.75%. Please remember CFDs are a leveraged product and may not be suitable for everyone, and losses as well as profits can be magnified.

Stop losses are not guaranteed and therefore you can lose more than your initial deposit. Guaranteed stop losses are available at an extra cost.

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Risk Warning

Trading in Contracts for Difference may not be suitable for all investors due to the high risk nature of the product. You may lose all of your initial stake through the use of leverage and may be required to make additional payments by way of margin on a frequent and sometimes daily basis. Failure to do so can result in the closure of part or all of your position.

The value of an investment in a Contract for Difference may be affected by a variety of factors, including but not limited to, price volatility, market volume, foreign exchange rates and liquidity. CFD's are a short term trading tool and commission is charged on the leveraged amount (not the deposit) and therefore costs can build up when frequently traded. You should evaluate potential losses against affordability. JN Financial are authorised to give advice on investments including CFDs, however extended runs of losses as well as profits can occur. Past performance is not necessarily a guide to future performance.

If in any doubt, please seek further independent advice. Tax laws may be subject to change.

JN Financial Limited is authorised and regulated by the Financial Services Authority No. 442252