May 24, 2016

Long

What is “Long”

The act of opening a buy position in the market.

  1. (1) One who has bought a futures contract to establish a market position; (2) a market position that obligates the holder to take delivery; (3) one who owns an inventory of commodities.
  2. A market position where the client has bought a currency he previously did not hold. Normally expressed in base currency terms.

Going Long

“Going long” is simply buying a CFD position to profit from a price increase.

Very similar to traditional trading in that the idea is to buy low and sell high.

The difference between the entry price and the exit price is the profit or loss that is made on the CFD trade.

The example below of a long trade is compared to a traditional equity trade.

The reason for this is to illustrate the power of leverage for a CFD trader over a traditional share trade as well as that minimal capital is required to gain similar profits and how the CFD trader Return on Investment (ROI) is far greater than the share trade.

This is simply because the CFD trader only needs a fraction of the capital to take the trade.

Example of Long trading

CFDs Shares
DAY 1 Amy Steve
Opening Purchase Price $35 $35
Buy Quantity 500 500
Commission Paid 0.10% $17.50 0.10% $17.50
GST $0 $1.75
Total Exposure $17,500 $17,500
CFD Margin – 5% 5% $875
Initial Outlay $892.50 $17,519.25
DAY 2
Closing BHP Position
Closing Price $36 $36
Quantity sold to close position 500 500
Position Closed $18,000 $18,000
Commission 0.10% $18 0.10% $18
GST $0 $1.80
Financing charged at 6.5% p.a based on RBA rate of 4.5% ** $3.16 $0
$35.50 x 500 x (RBA rate + 2%) / 365
Total Outlay $913.66 $17,539.05
Gross Profit $500 $500
Net Profit (Gross minus trading cost) $461.34 $460.95
Return on Investment 50.49% 2.63%
** Financing is calculated at the closing market price of $35.50
NOTE: If the price of BHP had fallen by $0.50 Amy would have incurred a loss of $538.66

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