CFD Example | Using Orders

Opening the position

It’s the afternoon of 10 July 2012 and Barclays shares are currently priced at 168.1p-168.3p.
 
You believe the price will rise, so you open a long position and 'buy' 10,000 shares as a CFD at 168.3p (the offer price).

You decide to place a stop loss at 165.5p.

Triggering the stop

The share price drops by the close of trading, finishing the day at 167p. 

The market opens the following day at 164.3p-164.4p.

Although you experienced 'slippage' overnight, without your stop you could have lost more than you did. By the end of the day, the share price has fallen to 162.2p. If you closed your position at that level, you would have lost £610.

Opening the position

Towards the close of trading on 20 September 2011, BP is quoted at 415.1p-415.2p, and you 'buy' 2000 shares as a CFD at 415.2p, the offer price, on a controlled risk basis.

Guaranteed stops have to be set a minimum distance away from the current price. On most FTSE 100 shares for instance, it is currently 5%.

You decide to put your guaranteed stop at 394.2p, slightly more than 5% away. Should the market move against you, your position would be closed at exactly 394.2p; even if, for example, the share is subject to large losses in a short space of time.

So the most you can lose on the position (excluding interest and dividend adjustments) is £420.

415.2p, the opening level, minus 394.2p, the stop level = 21p

21p x 2000 shares = £420

The commission on the transaction is £8.30 (2000 shares x 415.2p x 0.10%). See commissions for more information.

A premium is charged for the guaranteed stop when the position is opened. In this case it is 0.3% of the value of the shares, or £24.91 (2000 shares x 415.2p x 0.3%).

Triggering the guaranteed stop

Unfortunately, two days later there are sharp losses in US and Asian markets, and the next day BP opens much lower, and then continues to drop.

On the open they are quoted at 392.0p-392.1p but your guaranteed stop is triggered and your position is actually closed at 394.2p.

Your loss on the trade is calculated as follows:

Without the guaranteed stop, you would have lost more than you did. Soon after the open the price fell to 390p, and your losses could have been more than £500.

To calculate the overall result of the transaction you would also have to take into account the commission and controlled risk premium you have paid, and the interest and dividend adjustments.

These are applied to controlled risk positions in exactly the same way as to standard CFD positions (see our detailed CFD example).

Opening the position

One morning the EUR/USD forex pair is trading at 1.4002-1.4003 and you 'buy' two EUR/USD contracts at 1.4003.

Each contract equates to a $10 per point movement, so you are exposed to a $20 loss or gain per point movement. You choose a trailing stop distance of 30 points and a step size of 10 points.

The stop initially sits 30 points behind your opening price, at 1.3973.

Immediately the euro starts to rise against the dollar. Very soon our price has risen to 1.4013-1.4014 (10 points above your opening price) and your stop level 'steps' up by 10 points to 1.3983 to re-establish a 30-point distance from the new market level.

The rally continues and by lunchtime EUR/USD is trading at 1.4068-1.4069.

Your stop has therefore moved up automatically five more times and you are now sitting on a healthy potential profit with your stop waiting 35 points behind at 1.4033.

Triggering the trailing stop

However, a surprise announcement in the afternoon sends the euro plummeting and within minutes EUR/USD is trading back down at 1.4010-1.4011.

Your trailing stop has kicked in at the last selected level, 1.4033, still well above your opening price of 1.4003.

Your profit on the trade is calculated as follows:

With a conventional stop order you would still be in the market, looking at a relatively small paper profit.

By contrast with a trailing stop you are able, in this scenario, to profit from a volatile market.

Please be aware that a non-guaranteed stop order may not limit your risk in times of rapid market movement. In such cases the market may move through your stop, in which case your order will be filled at the best available price.

Opening the position

It’s 10 July 2012 and Lloyds Banking Group shares are priced at 30.32p. You think they have room to rise, so you 'buy' 70,000 shares as a CFD at 30.32p.

The total value of your position will be £21,224 (70,000 shares x 30.32p), but with a margin requirement of 5% of the value of your position, you are able to open your position with a deposit of just £1,061.20.

You place your limit order at 31.62p. This means that if the share price reaches or exceeds 31.62p, your order will be triggered and subsequently executed. In this case, your position will be closed at a level of 31.62p to give you a gross profit of 1.3p a share.

Triggering the limit order

Over the next two days the share price rises to 32.14p before falling back to 29.39p on 12 July. However, by placing a limit order you were protected when the market turned; your limit order was automatically triggered and your trade subsequently closed at a level of 31.62, realising a gross profit of 1.3p a share.

To determine your net profit, you would also have to take into consideration the opening and closing commission charges, any dividend payments and overnight financing charges.

It is important to understand that a limit order is a type of non-guaranteed order and we will exercise our reasonable discretion to determine when non-guaranteed orders are triggered and the level at which they are executed.