MF Global

Opening the position

It is early July and you decide ABC is undervalued. The share is quoted at $2.80/2.81 in the market, and you buy 10,000 share CFDs at $2.81, the offer price. The commission on the transaction is 0.125% or $35.13 (10,000 shares x $2.81 x 0.125%). The margin requirement is $2,810 ($2.81 x 10,000 x 10%).

While your position remains open, your account is debited to reflect interest adjustments and credited to reflect any dividends.

Interest adjustments

The interest cost of your position is calculated daily, by applying the applicable interest rate to the daily closing value of the position. The daily closing value is the number of shares multiplied by the closing price.

In this example, the applicable interest rate might be 8.25% and the closing price of the shares on a particular day might be $2.90. The closing value of the position would be $29,000 (ie. 10,000 shares x $2.90).

So the interest cost for the position for this particular day would be $6.55 (ie. $29,000 x 8.25% / 365).

Each day's interest calculation will be different. Interest adjustments are calculated daily and posted to your account on a daily basis.

Dividend adjustment

In early August your position is still open at the time of the ABC ex-dividend date. The amount of the declared cash dividend is 6c per share and this is credited to your account. The adjustment is calculated as follows:

10,000 shares x $0.06 = $600

Closing the position

By late August, ABC has risen to $3.20/3.21 in the market and you decide to take your profit. You sell 10,000 shares as a CFD at $3.20, the bid price. The commission on the transaction is 0.125% or $40 (10,000 shares x $3.20 x 0.125%).

Your profit on the trade is calculated as follows:

Profit on Trade

Closing Level $3.20

Opening Level $2.81

Difference $0.39

Profit on Trade: $0.39 x 10,000 = $3,900.00

Calculating the overall result

To calculate the overall profit on the transaction you also have to take account of the commission you have paid and the interest and dividend adjustments that have been credited or debited. In this example, you might have held the position for 51 days, at a total interest cost of, say, $334.05. You have received a dividend adjustment of $600.

So your total profit on this transaction is calculated as follows:

Overall Result

Profit on Trade $3,900

Total Commission ($75.13)

Interest Adjustment ($334.05)

Dividend Adjustment $600

Total profit on Trade: $4,090.82