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CFD Trading Leverage Example: Keppel Corp
In conventional dealing, you would have to pay your broker the total value of the shares you wish to purchase. Say you wished to purchase 10,000 Keppel Corp shares and the current value of its shares is SGD6.48. You would have to pay the total value of the shares purchased, i.e. SGD 64,800 (10,000 x SGD 6.48).
With CFD trading, however, you only have to deposit a small percentage of the total trade value whilst maintaining the same level of exposure. If we charge our margin rate for Keppel Corp of 10% of the total trade value, you would need to only deposit an initial SGD 6,480 (10,000 x SGD 6.48 x 10%) plus commission to trade the same SGD 64,800 exposure.
Our typical share margins range from 10% to 20% on our most popular shares whilst our margins for Indices CFDs such as the UK 100 and Wall Street start at just 5%. Our margins for major currency CFDs start from just 2% and commodity CFDs from 20%. Please be aware that some CFD contracts incur a small overnight financing charge. Find out more about our financing and charges.
Example of gains
By only having to deposit a small fraction of the total trade value whilst maintaining a full exposure, you can magnify your gains. In the above leverage example, you only need to make an initial deposit of SGD 6,480 plus commission whilst maintaining a total exposure SGD 64,800. Were Keppel Corp’s share price to rally 7% in your favour, you would net a profit of SGD 4,536. This represents a return on investment of 70% even though the share price has only moved 7%.
Magnifying your losses
As with all forms of financial trading, there is the potential to lose all or part of your investment. The key risk with leverage is that it can magnify your losses in exactly the same way as your gains. If the Keppel Corp share price had moved against you falling to a new price of SGD 6.38, your position would now be worth SGD 63,800 resulting in a SGD 1,000 net loss. This represents a return on investment of -15.4% as the share price has dropped 1.5%. Your City Index CFD trading account includes a range of risk management tools to help you manage your risk. Find out more about CFD trading risks.