EXAMPLE OF USE OF LEVERAGE WITH CFDs
Suppose that the shares of Boeing (BA) trade at USD 130 per share. You decide to buy 1000 CFDs (shares) of BA at this price.
If you had to pay the full value of those shares, it would cost you USD 130.000.
Using leverage, you get an exposure to the same number of shares of BA contributing only a fraction of the total purchase price as a margin on your trading account. With some popular stocks like BA, the margin may be only 5% of the total value. This means that you have to put USD 6,50 per CFD as margin on your trading account.
The total margin needed in your account for 1.000 CFDs (6,50 x 1000 CFDs/shares) is USD 6.500 (and you will get the same exposure as if you had acquired the assets directly).
If the price of BA moves to USD 131 per share and you dicide to sell your contract of 1000 CFDs BA at this price you make a profit of USD 1.000 (1000 CFDs X USD 1).
Summary of operation:
Buy 1,000 CFDs BA at USD 130
Sell 1,000 CFDs BA at USD 131
Profit: USD 1.000
Margin needed: USD 6.500
In this example you make a similar profit with an investment of USD 6.500 (margin on your account) than you would have made with USD 130.000 (buying the shares).
Of course you can also lose this amount If the price of BA falls, and you decide to sell or close your contract.
The required margins and slippage factors may vary according to the regulatory rules in force in the country where the account is open.
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Forex and CFDs are leveraged products and carry a high level of risk. You can lose all your deposited capital.