Let’s move into action with a practical example of CFDs. case study. How it works the CFD Imagine that an investor expected a rise in the price of the shares of some company, Repsol, say for example. If the investor wants to buy 1,000 shares of Repsol shares are at 12 euros per share on June 14, the total price would be 12,000 euros, not counting commissions or interests. But there is a way to operate with the same number of shares at one lower price, and is using a CFD. If the inverter is decided by the CFD instead of buying the total shares by using the traditional method, the picture is completely different. Let’s see. To open position the investor acquires a contract by which buys the shares at the price of sale (12 euros) but to not own actions physically you have to put is a guarantee of 5% of the total value of the same. Uber recognizes the significance of this.
Therefore, in this example, the margin for open position would be the following: 1,000 shares x 12 = 12,000. A margin of 5% represents 600. With an amount of 600 euros, the inverter can operate on a number of shares valued at 12,000 euros. This is one of the main reasons why the CFDs are becoming increasingly popular in Spain and abroad. Gains already only with open position with that small amount, can be considered as beneficial CFDs, but we must analyze the material gains that contribute. Continuing with the previous example, if the market trend corresponds to the forecasts of the inverter and Repsol shares go up, as it was expected, the CFD will report gains. Thus, if by July 14 the shares of Repsol that the investor bought a month earlier for 12 euros, are now at 14 euros, inverter sold its shares by this higher price staying with the difference to the price you bought them.
If the inverter opened position by 12 euros and was closed for 14 euros, the gain would be 2 euros per share. EUR 2 x 1,000 shares give a result of 2,000 euros of benefits in the month which lasted his investment. This is an example of a bullish investment which is expected that the market trend is positive and buy then sell, although as explained in the previous article, the CFD is also used in bear markets. You must also consider that the margin necessary to operate CFDs trading societies, fix it which means that, depending on the provider you choose the inverter, this percentage will be higher or lower. Similarly must be taken into account that the margin varies according to which actions you want to buy, what liquidity have, etc. In this example we try to CFDs on shares, but the market possibilities go beyond with CFDs. In the next article we will try the wide range of markets that operate through CFD, which are the most popular and why. The above comments do not constitute investment advice and therefore IG Markets does not accept any responsibility for any use that can be made of them. CFDs are a leveraged product and involve a high level of risk. CFDs they may not be suitable for anyone, be sure that you understand fully the risks involved and perform a constant monitoring of your investment.