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• Margin FX

• CFD

Margin FX Example

Opening Trade

You believe the NZD will strengthen against the USD and decide to go long and buy NZD at the bid rate and sell USD at the offer rate. If you would like a $100,000 position, you only have to put up 1% as margin, so $1,000 NZD will be charged to your trading account.

• Velocity Trade is showing the price of NZD/USD as being 0.7447 (bid) / 0.7450 (offer).
• Buy NZD$100,000 @ 0.7450 (buy price) = $74,500

Closing Trade: Profit

• The price of NZD/USD has appreciated to 0. 7500 (bid) / 0.7503 (offer) and you decide to close you position and sell NZD at the bid price:
• Sell NZD $100,000 at 0.7500 (sell price) = $75,000
• Profit = (sell price –buy price) x size of position
• (0.7500- 0.7450) x 100,000 = USD$500 profit
• Initial profit/losses are shown in the second currency; to convert it back to NZD at the NZD rate of 0.7500
• US$500 / 0.7500 = NZD$ 666.67

Closing Trade: Loss

The price of NZD/USD has dropped 30 points and is now showing as 0.7420 (bid) / 0.7423 (offer). After an unexpected news release, you have changed your mind and believe the NZD will fall further so you decide to close the trade by taking an opposite position.

• Sell NZD $100,000 @ 0.7420 (sell price) = $74,200
• Loss = (sell price – buy price) x position size
• (0.7420 – 0.7450) x $100,000 = (USD$ 300)
• (USD$300) / 0.7420 = (NZD$ 404.31)

The loss of NZD$404.31 and is taken out of your balance once the trade has been closed and your free margin is increased by 1% of the base currency ($1000 NZD).

End of Trading Day – Rollover

Any open positions held at the end of the trading day (5pm New York time) will be rolled over and remain open until the end of the next business day, unless the position is closed. These open positions will be charged rollover which is the interest paid or earned by you when your transaction is rolled to the next trading day. Each currency has an interest rate associated with it, and because foreign exchange is traded in pairs, every trade involves two different interest rates and this difference is calculated using the positions at 5pm New York time.

• You are holding your $100,000 long position from the above example overnight.
• The current interest rate for NZD is 3% and US is 0.25% the difference is 2.75%.
• From the above example, if you buy NZD $100,000 @ 0.7450
• You receive ($100,000 x 2.75%) / 360 = $7.60  

CFD Example

(All prices below are in NZD)

Velocity Trade is showing the price of shares in a company called ABC Holdings Ltd (ABC) as being $4.13 (bid) / $4.14 (offer). You believe ABC’s share price is undervalued and you decide to enter into a CFD to go long and buy ABC shares in the expectation that the share price will rise.

Opening Trade

• You go long 10,000 shares in ABC at the offer price:
• 10,000 x $4.14 = $41,400
• Commission is payable at the rate of 0.2% of the value of your position:
• $41,400 x 0.002 = $83
• An Initial Margin of 10% is required:
• $41,400 x 10% = $4,140

You now have a long CFD position in ABC Holdings worth NZD $41,400

A financing charge is applied to your trading account on a nightly basis in respect to any positions kept open overnight. In this example, if each night the closing price for shares in ABC was NZ $4.29 you would pay (10,000 x $4.29) x 4% / 365 = NZ$4.70 for holding your position overnight. This amount would be debited from your Account on the next trading day.2

• Overnight financing charge at 4% of the value of your open BUY position:
  (10,000 x $4.29) x 4% / 365 = $4.70

Closing Trade: Making a profit
One week after opening your position, ABC’s share price has increased and is now quoted on the Velocity Trade Trading Platform as being $4.39 (bid) / $4.40 (offer). You decide that this is a good time to go short and sell the shares back to settle your position and realise your profit.
 

• You go short 10,000 shares in ABC at the bid price of $4.39:
• 10,000 x $4.39 = $43,900
• Commission is payable at the rate of 0.2% of the value of your position:
• $43,900 x 0.002 = $88
• Your margin requirement is now zero as this position is now closed. Any previous margin amount is now returned to your Trading Account.

Summary

• Opening value of your CFD position
  $41,400
• Closing value of your CFD position
  $43,900
• Gross profit on trade
  $2,500
• Overnight financing charges (7 nights)
  $4.70 x 7 = $33
• Commission (2 trades: one buy and one sell)
  $83 + $88 = $171
• Net profit on trade
  $2500 - ($33+$171) = NZD $2,296

Closing Trade: Making a loss

One week after opening your position, ABC’s share price has declined and is now quoted as being $3.89 (bid) / $3.90 (offer). You decide to take the loss and close your position by going short and selling back your shares.

• You go short 10,000 shares in ABC at the bid price of $3.87:
  10,000 x $3.89 = $38,900
• Commission is payable at the rate of 0.2% of the value of your position:
  $38,900 x 0.002 = $78
• Your margin requirement is now zero as this position is now closed. Any previous margin amount is now returned to your Trading Account.

Summary

• Opening Value of your CFD position
  $41,400
• Closing Value of your CFD position
  $38,900
• Gross loss on Trade
  ($2,500)
• Overnight financing charges (for 7 nights)
  $4.70 x 7 = $33
• Commission (2 trades - one BUY and one SELL)
  $83 + $78 = NZ$161
• Net loss on Trade
  ($2,500) + ($33 +$161) = NZD ($2,694)

1. Initial Margins will vary from trade to trade, but are typically between 0.5% and 30% the value of your opening position, depending on the type of underlying instrument, its liquidity and volatility. You can see a full list of margin requirements on our web site or find out more by contacting us.
2. This overnight financing charge is comprised of the Overnight Deposit Rate ("ODR") for the country that issued the underling instrument plus or minus a Velocity Trade charge of 3%. You will pay the charge on long positions and receive the money on short positions. In the above example, an ODR of 1% combined with the Velocity Trade margin of 3% would equate to an overnight financing charge of 4%. If you had taken a short position, the overnight financing rate would be: 1% - 3%, so 2% in which we would pay to your trading account.

Rollovers CFDs

Any open positions you hold at the end of the trading day (5pm New York time) will be rolled over and remain open until the end of the next Business Day unless the position is closed. If your CFD is rolled over, the interest is paid or earned by you with the amount being determined by the instrument you are trading. Your CFD transaction may be rolled indefinitely provided that you continue to meet your margin requirement and maintain the minimum required free margin. Free margin is the amount that you have available in your account to meet any increase in your margin requirement (without the need to deposit additional funds).

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