CFD Trading

How do I calculate the notional values for a CFD?

When you place a CFD Trade with GoDo, you are using leverage* to
control more money than you have to put down for the trade (margin). For
example, if you place a trade on GER30 (DAX) today – let’s say, for one
contract – you only need about 14 euros in margin. However, the GER30 (DAX) is
currently trading at 12,605. Then, how much money are you controlling? That is
when the question of Notional Value comes into play.

Notional Value is the total value of a leveraged asset. Since CFDs are
leveraged, when a trader opens a CFD position, GoDo sets aside a portion of the
trader’s account equity as a margin deposit. However, margin is only a portion
of the amount that is controlled. The total amount controlled by the trader is
the Notional Value:

Notional Value = (Current Price of Asset * Multiplier) * (Contract
Size)

The multiplier is the amount a trader would earn per 1 contract if
the instrument moved one point.

A point is a change in the last number of an instrument prior to
the decimal place.

It is important to note that a one-point move, and a one pip move
are not necessarily the same thing.

Product

Multiplier

Instrument Counter Currency

SPX500

1

USD

GER30

0.1

EUR

US30

0.1

USD

 

Example

A trader is long 5 contracts of SPX500. His account is denominated
in USD. The BID for SPX500 is 2,270.93. The multiplier for SPX500 is 1. The
SPX500 is denominated in USD.

SPX500 Notional Value = (Current Price of SPX500 * Multiplier) * (Contract
Size)
SPX500 Notional Value = ($ 2,270.93 * 1) * (5)
SPX500 Notional Value = $ 11,354.65

The trader controls $ 11,354.65 in SPX500

What are your trading hours?

Our CFD Trading Hours can be found on the website under Trading
Products-Global Indices.

What is the index CFD financing cost?

The formula for financing cost is as follows:

[Closing Price of the Index * [(the relevant
1-month LIBOR or SONIA rate/100) +-  Markup]/Number of Days] * Trade Size

Note that the financing markup for long positions
on CFDs is +3% and for short positions is -3% for US Libor instruments and
-2.5% for other instruments.

To account for holding a position into the weekend,
there is a 3X rollover on Wednesdays for XAU/USD and XAG/USD and 3X rollover on
Fridays for other CFD products. Additionally, there is no rollover on holidays,
but an extra days’ worth of rollover before the holiday.

What is Margin?

Margin can be thought
of as a good faith deposit required to maintain open positions. This is not a
fee or a transaction cost, it is simply a portion of your account equity set
aside and allocated as a margin deposit. Margin requirements (per 1k lot for FX
and 1 Contract for CFDs) are determined by taking a percentage of the notional
trade size plus a small cushion. A cushion is added to help alleviate
daily/weekly fluctuations.

What are CFDS?

CFD stands for
Contract for Difference. CFDs are specialised and popular Over The Counter
(OTC) financial products that allow traders to easily take broad market
positions in a variety of different financial markets.

Will my Margin requirement be lowered should I attempt to hedge with similar products?

No.
Due to the imperfect nature of hedging, hedging with different assets is still
prone to considerable risk, and hence does not figure into margin calculations.

 

Please
be advised that trading on margin carries a significant risk of loss and is not
suitable for all investors.

Are there any benefits to trading a CFD over trading the underlying asset?

Yes, there are. CFDs give traders a lot of options that he would not otherwise have, allowing him to be flexible.

  1. CFDs are traded with leverage, allowing a trader to control a large market position while employing a smaller amount of capital than would be required to control an equivalent position in the underlying asset. Leverage can significantly increase both your gains and losses.
  2. With a CFD account, a trader has the ability to trade Forex, Stock Indices, Oil, Gold, and Silver all from the same account. To trade the underlying market itself, a trader usually needs to have different accounts, often denominated in several different currencies, and often at different brokers.