| Leverage |
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Leveraging is a strategy that involves taking a larger position in an asset than you could otherwise afford in cash. You may have used leverage to buy property - either your home or an investment. Leveraging to invest in shares or other financial instruments is also popular, but not without risk. With CMC Markets’ Shield CFD account you can leverage financial assets such as shares, indices or foreign exchange safe in the knowledge that you can never lose more than the balance in your account. | |
Case study
It’s late 2006 and believing that Aussie shares will have another strong year in 2007 Jim decides to double his exposure using CFDs. As he doesn’t consider himself a stock picker, Jim decides to leverage his exposure with Aussie 200 Index CFDs. Aussie 200 CFDs provide exposure as per a normal index fund.
The following graph illustrates the performance of Jim’s Aussie 200 Index CFDs and net change in his portfolio for the first 6 months of 2007. The Index CFDs and portfolio are both valued at $500K.
Summary as at 29.06.2007
| CFD Leverage | Portfolio | ||
|---|---|---|---|
| Initial deposit | $50,000 | Opening Balance | $500,000 |
| Commission | - $50 on $500K | Commission | - |
| Interest¹ | -$18,656 | Interest² | 39 |
| Profit on CFD | $53,323 | Profit on portfolio | $53,323 |
| Dividends³ | $7,000 | Dividends | $7,000 |
| Balance | $91,617 | Balance | $560,362 |
Net Profit: $101,979 | |||
Notes:
1. Interest charged on index CFD at 10.5%
2. Interest earned by client at 4.5%
3. Dividend yield 3% on $500K
