Examples

   Long CFD Example

   Short CFD Example

COMPARISON WITH CONVENTIONAL TRADING

Long Trade in Marks & Spencer

Two investors believe that Marks & Spencer shares will go up in the short to medium term.

Client A has £30,000 to invest. He buys the share in the traditional manner through his regular broker.

Client B also has £30,000 but he has deposited this in his CFD margin account through Blue Index. He can use these funds to take long and short positions as he sees fit.

* Initial margin plus commission. Initial margin in this case is 10%. This margin must be maintained and any loss on the position must be met in order to control the position.

Closing the position. 10 days later M & S shares have risen to 3.40. You decide to close at profit.

This example is obviously a favourable outcome, if the share price had moved against you, the leverage effect would have magnified your losses.

Short Trading

Client A's traditional stockbroker is unlikely to allow him to sell shares he does not already own. Thus using traditional share trading he is likely to be unable to profit from a fall in the price of a share.

Client B can go short as easily as he can go long by trading CFDs and can take a negative or a positive view on a share.

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LONG CFD EXAMPLE

Opening Trade

You decide that Marks & Spencer shares look attractive and are going to rise. You call your trader at Blue Index and excecute the trade at the going price of the underlying shares or better. You pay no stamp duty.

Closing the Position

10 days later Marks & Spencers shares have risen. You decide to close the position at a profit.

This example is obviously a favourable outcome.

If the share price had moved against you, the leverage effect would have magnified your losses.

* Overnight Financing

If you hold a Long CFD position open overnight you pay a financing charge based on sterling LIBOR and the closing value of the shares. In this example the financing rate is LIBOR + 2%. LIBOR is 4% and the closing price of M & S on the day of the opening trade is 300.00p.

So financing charge rebate = 10,000 x 300.00p x 6% (4% + 2%) = £4.93 1800 per year 365 = £4.93 per day

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SHORT CFD EXAMPLE

Opening Trade

You decide that Vodafone shares are overpriced and are going to fall. You call your trader at Blue Index and execute a trade to sell short at the market price of the underlying shares or better.

Closing the Position

2 days later Vodafone shares have fallen. You decide to close the position at a profit.

This example is obviously a favourable outcome.

If the share price had moved against you, the leverage effect would have magnified your losses.

* Overnight Financing

If you hold a Short CFD position open overnight you receive financing based on sterling LIBOR and the closing value of the shares. In this example the financing rate at Blue Index is LIBOR - 2%. LIBOR is 4% and the closing price of Vodafone on the day of the opening trade is 125.00p.

So financing charge rebate = 25,000 x 125.00p x 2% (4% + -2%) = £1.71 625 per year 365 = £1.71 per day.