How to count pips in CFDs? (e.g.,sp500,dowjones,chinaA50,Nasdaq)
could u please explain to me?
An example of a deal on the instrument ES - Standard & Poor’s 500 Index US 500 (USA)
The trader wants to make a deal to buy 0.1 lot on the instrument ES - Standard & Poor’s 500 US 500 Index (USA) at the level of 1794 points on the scale of the index values.
The size of a standard lot is 50 index values. In case of buying 0.1 lot, the transaction volume will be 5 index values.
The nominal value of 10 values of the S&P 500 index will be: 1794 * 5 = $ 8970. This is the amount a trader would need to physically buy 5 indices at the current market price. The advantage of trading CFD instruments is that the trader does not need to pay the full price of the commodity he is trading. The purpose of a CFD transaction is not to physically own an asset, but to profit from fluctuations in market value. The completion of such a transaction requires only the payment of the necessary collateral.
For the S&P 500 index, the collateral (margin requirements) is 0.5% of the par value of the transaction volume, i.e.: $ 8970 * 0.5% = $ 44.85.
The minimum price change (point size) for the instrument ES - Standard & Poor’s 500 US 500 Index (USA) = 0.01. When buying a CFD on the S&P 500 index with a volume of 0.1 (5 index values), a price increase of $ 1 will give us a profit of 0.01 * 100 * 5 = $ 5.
Therefore, when buying a CFD on the S&P 500 index in lots of 0.1, an increase of 10 points gives a profit of $ 0.5, for 100 points - a profit of $ 5.
It turns out that by buying a CFD on the S&P 500 index in lot 0.1 at the level of 1794 points on the scale of the index values, and selling it at the level of, say, 1795, the trader will receive a profit of 1795 - 1794 = $ 1 (100 points) per 1 index value. Because lot 0.1 is 5 index values, then the TOTAL PROFIT will be $ 1 * 5 = $ 5.
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Are you trading with real money yet? Also what made you choose CFDs instead