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I was wondering if you would be able to explain the reason/maths behind this. I invested a small some into a CFD stock today and it's currently sitting at about an 7.5% increase from when I made the order.

I was charged 20 CAD to place the order (fair enough, a little steep though).

Despite this, I'm still somehow in the red even after an 7.5% increase. How exactly is that possible?

The 19.370 was my entry and and 20.820 was it's value at the time of the screenshot.

7.5%

Margins

If someone could explain how the math works here, I'm all ears.

Thanks.

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  • How many shares did you enter into the CFD for? I was guessing that's what the "14" is but the math doesn't add up for that.
    – D Stanley
    Jun 8, 2020 at 19:19
  • @DStanley Just the 6, 14.000 is my stop loss price. Jun 8, 2020 at 19:33

1 Answer 1

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If you bought 6 shares as a CFD, your payoff will be the absolute change in price times 6. Since the stock went up 1.45 (20.82 - 19.37) your profit so far from the CFD is 1.45 * 6 = 8.70. If you substract the 21 CAD charge (I'm assuming) then your total net loss is 12.30 (which is close to the -13 that is shown; whatever that means)

Note that the 7.49% increase is irrelevant for a CFD since you get paid (or have to pay) based on the absolute change in stock price. The relative increase would matter if you bought the stock outright (i.e. if you bought 100 CAD your profit would be 100 * 7.49% or 7.49)

If you got charged 21 CAD as a transaction cost (not just a margin payment) then you got screwed. The stock would have to go up a total of 3.50 CAD (21/6) or 18% just to break even.

My advice (that you didn't ask for) if you are an investing novice is to stay away from CFDs. It's very easy to lose more than you have if a stock turns against you. If you're investing to learn, then invest in stocks or ETFs directly, and invest enough that you don't get eaten alive by commissions.

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  • Very clear and concise. Thanks for clearing that up, I might stick with equity for the time being. It would seen Saxo markets really screw you over. I was using them to trade CFD's back when the MJ stocks were very volatile and I actually made some decent gains. But the again they were going up 15%'s a day and stuff like that. Jun 8, 2020 at 20:23
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    Well, to be fair, their commission structure is better for larger volumes - if you had traded 1,000 shares then it would only take a 0.02 move to make up for the fees. But then your exposure is 166X higher as well. CFDs are just incredibly risky since you can lose more than what you put in.
    – D Stanley
    Jun 8, 2020 at 20:31
  • That's true, seeing as I'm still a novice would you advised I just stick to investing in equity for the time being for learning purposes? And do you have any material you'd recommned? Jun 8, 2020 at 20:41

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