How to trade an Index?
Although Indices are not quoted like ordinary equity shares with a BID and ASK price, Ava’s CFD Indices quote a BID and ASK price and allow you to trade indices as a CFD.
Example: The FTSE 100 is currently trading at 6320.50 and Ava is quoting a spread of £6319.50 (Sell) - £6322.00 (Buy) on the FTSE.
The Buy price of 1 CFD is £6322.00. Ava provides you with 20:1 leverage so instead of having to use £6322.00 of your money to buy one FTSE100 actual index; you can buy one FTSE100 CFD contract with £300 and the remainder we provide to you as leverage. So with £6322 you can buy 20 FTSE 100 CFD contracts, instead of just one index.
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How to calculate profits/losses
Forex:
The foreign exchange rate represents the value of one unit in the major currency in the terms of a secondary currency. Since when opening a trade you exercise the trade in a set amount of the major currency and when closing the trade you do so in the same amount, the profit or loss generated by the round trip (open and close) trade will be in the secondary currency.
For example if a trader sells 100,000 EUR/USD at 1.2820 and then buys 100,000 EUR/USD at 1.2760, his net position in EUR is zero (100,000-100,000) however his USD is not. The USD position is calculated as follows 100,000*1.2820= $128,200 long and -100,000*1.2760= -$127,600 short. The profit or loss is always in the second currency. For simplicity's sake the P&L statements often show the P&L in USD terms. In this case the profit on the trade is $600.
As can be seen from the Open position window below in Ticket number 411 the trader has Bought 20,000 EUR against the USD at 1.2806 the current rate to close is 1.2844, therefore the trader has a current profit of 38 pips and 20000*0.0038= $76.
CFD:
Investor A believes that the FTSE 100 is going to rise and buys 3 Index CFDs at £6322.00 each, for a total value of £18966.00. The margin required (deposit required) is just £900.
A week later the FTSE has risen and the daily FTSE spread is now £6422.00 (Sell) - £6424.50 (Buy).
The investor decides to close his position at a sell price £6423.00
The premium charges where -$1.69 per index per night.
Therefore, the total cost of carrying this investment is: (7 nights) * (3 indexes) * (1.69$) = -$35.49, or approximately £18.05.
The profit on the trade is calculated as follows:
|
Opening Level |
£ 6322.00 |
|
Closing Level |
£ 6422.00 |
|
Difference |
£ 100.00 |
|
Profit on trade, (£100 x 3) |
£ 300.00 |
|
Cost of Carry |
£18.05 |
|
Total Profit on trade |
£ 281.95 |
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How to limit my risk when trading CFDs?
When trading CFDs you can place stop loss orders which can help protect your investment if the market moves against you.
Other order types offered online include: Market orders, Limit orders (take profits), Stop-loss orders, trailing stop loss orders, If Done orders, and OCO (One Cancels the Other) orders. You are able to place and amend these orders free of charge.
Under abnormal market conditions, a stop loss order may not be executed at the exact price that you specify.
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Do I receive Dividends?
As an owner of a long Share CFD, your account will periodically be adjusted to reflect cash dividends paid on the shares of the underlying share minus the applicable taxes deducted at the relevant country. This is the same as if you owned the actual shares of the index.
If you sell (go short) the CFD, the full dividend will be deducted from your balance, as would happen if you sold the physical share.
However, with a CFD you are not entitled to any voting rights. Indices do not pay or charge Dividends.
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Risks of Contracts For Difference (CFDs)?
- The leveraged nature of trading with leverage means that both profits and losses can be magnified .Placing a stop loss order can help to control the extent of these losses. Ava ensures that you cannot lose more than your original deposit.
- You have no rights as an investor, including no voting rights.
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Can I use leverage when trading CFD?
Yes. The margin you need in order to open a position is 1-5% of the position size.
For example:
If the value of one S&P 500 index is $1400. You will need 5% or $70 in order to buy one CFD index.
If you have a balance of $10,000, you can buy 142 CFD indices of the S&P 500..
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What are the CFD trading hours?
CFDs follow the quotes of the underlying assets. Therefore, the trading hours depend on the exchange where the asset is been traded, its conditions, holidays and time zones.
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Do you have Fixed Spreads?
Yes, the Spreads in AVA Index are fixed under regular market conditions.
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What are the financial costs of CFD trading?
Trading in AVA Index requires no trading commissions, fees, Stamp duties, or management costs.
The only cost is the Spread between the buy and sell prices.
Our Spreads are very low and competitive, so that our clients can enjoy the best returns on their trades.
Because CFDs are traded on margin, if you hold a position open overnight it will be subject to a rollover charge. Long CFD positions are charged rollovers if they are held overnight, Short CFD positions will be paid rollovers. For rollover details
click here.
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What happens when the CFD rolls between Futures Contracts?
CFDs are based on underlying assets, which are Futures Contracts. They will be rolled a few days before the futures contract’s expiry date to the next Futures contract. Your CFD does not have an expiry date, however. When the futures contract is about to expire and we roll over to the next month’s contract, you will be debited / credited with the difference in value between the old and the new contracts. Note that these monthly rolls in the reference price will not affect your P&L - any necessary adjustments will be made to compensate for changes in price due to a roll.
For example:
The current Crude Oil price at expiry is $110.00. the next contract price is $111.00, so there is a difference of $1 per CFD. A client who bought the CFD will be charged $1 per contract, and a client who sold the CFD will be credited $1 per contract on the day that the contracts roll. In the case that the contract price goes down on the rollover date, the opposite actions would be taken: a short position would be charged and a long position would be credited.
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