Buying a share CFD moving higher (long position)
If you believe the value of a share is going to move higher over time, a share CFD can be purchased to speculate on such movement. If your forecast is correct the share CFD can earn a profit – whereas a loss occurs if the value of the share CFD moves lower.
Dividends are credited to long positions (net of taxes), and interest is deducted for holding positions.
Sale of a CFD moving lower (short position)
If you think the value of a share is going to move lower, you can trade with the CFD linked to such share on a short position, i.e. open a short position.
If the share actually moves lower, the position can be closed at a lower price, thus obtaining a profit – whereas the position is a loss if the quote moves higher. Interest is credited to short positions (moving lower), and any dividends detached from the share will be charged.
Example of a long position on Eni
As an example, after thorough analysis a decision is made to purchase 1,000 shares of Eni, considered to be trading below market price.
If the book of the Eni stock is 17.99 – 18.00 Euro and a decision is made to buy 1,000 shares, the purchase can be made for a price of 18.00 Euro. With traditional trading it would be necessary to put up the amount of 18,000 Euro. For Eni, the net margin required on ActivTrades’s CFDs is 5% of the total value of the stock that is bought. The margin required would therefore only be 900 Euro.
Let us suppose that the Eni quotes move until reaching 21.00 – 21.01. A decision is made to close the position for such value, in view of the profit that will be earned. The position is closed at 21.00, with a gain of 3 Euro for each Eni share CFD. The profit will therefore be 3,000 Euro (*), equivalent to + 333.33% of the capital used for the transaction, equivalent to 900 Euro.
|OPENING PRICE:||18.00 EURO|
|CLOSE PRICE:||21.00 EURO|
|DIFFERENCE:||+ 3 EURO|
|NUMBER OF SHARE CFDS||1,000|
|PROFIT GENERATED:||3,000 EURO|
The trade was therefore made with leverage of 1:20, obtaining a profit from such instrument. Vice versa, if the stock price had lowered to 15.00 -15.01, closing the position at such values would have resulted in a loss for the same amount (3,000 Euro).*
We encourage you to see the commissions page for more information on costs and commissions.
* To obtain the effective trading result it is necessary to calculate interest to maintain the position (passive interest on long positions, earned interest or null on short positions), any dividends, and commissions.