Trading leveraged trading products carries a high level of risk. Losses can exceed your intial deposit.
CFD’s are leveraged products which allow you to take a position by depositing a small percentage of the notional value of your trade. As you can go long or short on any market these dealing products give you the ability to profit irrespective of whether the markets are rising or falling; this provides trading opportunities during volatile market conditions.
CFD’s are leveraged products so it is possible to lose more than you initial deposit.
The term ‘CFD’ stands for Contract for Difference. This is a contract between you and ForexCFDs to exchange the difference in value of a financial instrument between the price at which the contract is opened and the price it is closed.
A CFD contract requires only a small percentage of the notional trade size to establish the position. A complete list of our products, markets and margin requirements can be found here.
Opening the position
You decide to go short of the euro against the dollar. The quote is 1.3742/1.3743, and you sell 2 mini lots (the equivalent of €20,000) at 1.3742.
As the notional value of your position is €20,000 to open the trade you must deposit margin of 1% of the notional value. Your margin requirement is therefore 1% x €20,000 = €200.
Closing the position
Later EUR/USD has fallen to 1.3676/1.3677, and you take your profit by buying 2 mini lots at 1.3677. Your profit on the trade (in USD) is calculated as follows:
Opening level: € 20,000 (2 mini lots) x 1.3742 $27,484
Closing level: € 20,000 (2 mini lots) x 1.3677 $27,354
Profit on trade ($27,484 – $27,354) = $ 130
Of course had EUR/USD risen to 1.3810/1.3811 and you decide to close the trade you would need to buy back 2 mini lots paying 1.3766 which would result in a loss
Opening Level: €20,000 (2 mini lots) x 1.3742 = $27,484
Closing level: €20,000 (2 mini lots) x 1.3811 = $27,622
Loss on trade ($27,484 – $27,622) = -$138
While the position remains open your account is debited or credited with the market swap rate +/- an administration charge. The swap rate expresses the cost of carry for the interest rate differential between the two currencies that have been traded past the contracts usual expiry date. This financing charge is often referred to as the ‘Roll-Over’. ForexCFDs performs its roll-over calculations each evening 17:00 ET (22:00 UK time).
Swap charges are released daily by the financial institutions we work with and are calculated based on risk-management analysis and market conditions. Each currency pair has its own swap charge and is measured on a standard size of 1.0 lot (100,000 base units).
Swap rates posted below are indicative rates and are subject to change based upon market volatility.
Example of roll-over
For example, if we have a 1 lot position, 100,000 EUR/USD at a rate of 1.36. The EUR daily rate of 0.05%, and the USD a daily rate of 0.01%.
The interest on the EUR is (100,000 * 0.05%) 5 EUR; the USD costs (136,000 * 0.01%) =13.6 USD. Converting the EUR to USD, 5 * 1.36 = USD 6.80. The net USD amount is 6.80 – 13.6 = – 6.8, which is divided by the 100,000 position. On a long EUR/USD position, the rollover costs 0.000068, or 0.68 pips and the admin charge of 0.75 means the total charge is 1.43
22:00 UK Time is considered the beginning and end of the trading day. A position opened at 22:05 is not subject to rollover until the next day, while a position opened at 21:59 is subject to rollover at 22:00 UK Time.
As the markets are closed on Saturdays and Sundays there is no rollover on these days but the banks still calculate interest on any position held over the weekend. To account for this procedure in the markets we offer we apply 3 days of rollover on Wednesday for currency pairs. For other products the 3 day roll will occur on Fridays.