In the beginning

Peter, a keen share and derivatives trader, recently started to trade CFDs, shopping around at several CFD providers before opening an account.

After researching the company, Beta Pty Ltd (Beta), he thinks its share price is undervalued. He decides to take a long position on CFDs over Beta shares.

The current price of a CFD over Beta shares offered by the CFD provider is $5. Peter logs into his CFD trading account and places an order to buy 4000 Beta CFDs. His order is accepted by the CFD provider at $5 per CFD. The total contract value is $5 x 4000 = $20,000.

The CFD provider requires a 5% margin to open a trade, which is deducted from Peter’s CFD trading account. The margin is equal to $20,000 x 5% = $1000. The provider also charges Peter a commission of $30 on this trade. See below for what happens next, depending on the price of Beta shares.

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