In the CFD for Dummies article, we talked, in a simple way, about what are CFDs and how they work. In this lesson, we will focus on the characteristics, variety and cost of the Ayondo CFD, with which you can do trading and social trading on their platform.
Thanks to Ayondo’s CFDs you can operate on: indexes, currencies, stocks, EFTs, commodities, interest rates and bonds.
Ayondo CFD – Let’s Understand How They Work With Practical Examples
The logic behind CFD’s functioning is quite simple.
It is based on the Trade size (size of the operations) concept, Per unit (minimum deviation of the underlying) and margin req. (invested capital to negotiate a single position).
To better understand the functioning of Ayondo’s CFDs let’s make an example with a currency trade, that are those for which you will receive the maximum amount of operational info.
When negotiating a currency pair you will see these information:
Of all the details that are given to you, the most important ones from the operational point of view are:
- Per unit: minimum deviation of the currency pair (0.0001)
- Per unit equals: the monetary value of the minimum deviation of the financial instrument (10$)
- Contract size: the amount of the contract (100000$)
- Minimum trade size: minimum position size (1,00)
Focusing to the practice, this means that if you open a position with a Trade size equal to 1,00, the operation’s equivalent will be equal to 112.007,00$.
Here there are the calculations of how to obtain such value:
Market purchasing price 1,12007*100.000,00$
Equivalent value of the contract=112.007,00$
Obviously, thanks to the CFD, it won’t be necessary to have that equivalent on your account, because the only thing that will be required will be a margin as a warranty of the operation, that, in the example, is equal to the 1%.
The calculation to do in order to get the expected margin is the following:
Trade value 112.007,00$*1% requested margin= 1.120,07$/1,1200 (exchange rate between EUR/USD)=1.000,04€
Now that you have seen the logic behind the calculations of size and margin for currencies, instruments that have a very detailed CFD’s form, I want to let you see an example of an operation on stock CFDs, that on the contrary have a form with less information.
As you will notice soon, despite the fewer disposable information, you do not need nothing more than:
- Per unit: minimum deviation of the currency pair (0.01);
- Minimum trade size: minimum position size (65,00)
The absence of the values “Per units equal” and “contract size” should not bother you at all.
Let’s look at a practical and clarifier example. Here is the operation:
As before, the Trade Value (the operation’s equivalent) is the product of Trade Size 65.00 * $ 14.18 Market Price = $ 962.65
Even in this case, you are free to establish the margin in autonomy, but respecting the minimum permissible. Doing the following calculation, we obtain:
Trade Value $ 962.65 * 10% Requested Margin = $ 96,265 / 1.1045 (the value of the EUR / USD) = € 87.15
NOTE: The fact that you see two different values of the EUR / USD is simply because the samples were extracted in two different weeks.
The same logic calculation for the allocation of the Trade Value and Margin req. have to be applied to CFDs on commodities, indices, ETFs, bonds and interest rates.
The Ayondo’s CFDs Convenience
Once that the mathematical calculation with which Ayondo establishes the Trade Value and Margin req. is identified, let’s try to understand why these values are so important to you.
We said that the Trade Value corresponds to the equivalent real value of the transaction.
In the above example, the $ 962.65 correspond to the equivalent market value of the trade, which means that, if we would have not used a CFD, $ 962.65 would have been necessary on the account to open a position in the 3D Systems Corporation.
Anyway, we said that with CFDs we operate using the margin.
The Margin Req. is precisely the amount that Ayondo will block on your account to work with a counter value equivalent to the actual trade value.
In the example of the stock CFD, the required margin was € 87.15. If it were not for the EUR / USD exchange, that modified the required margin calculation, it would correspond exactly to the percentage entered in the “Effective Margin Rate”, i.e. 10% of $ 962.65.
This means that with a 10% margin we are able to operate for a counter values 10 times higher than what is required as a margin.
This means that, assuming a stock percentage deviation of 5%, your potential profits or losses will be calculated as 5% of $ 962.65, and not of € 87.15€.
This is the effects of the famous leverage.
Profits and losses are calculated on Trade Value, while you are actually investing only the capital that will be blocked as Margin req.
If you want more details on the subject, you can find everything in our financial leverage lesson.
Ayondo CFD Cost
If the lever is interesting, allowing you to boost profits, Ayondo sees it as a kind of loan given to the investor.
The amount lent corresponds to the difference between the Trade Value and Margin req., value on which is applied a 2.5% spread on a one-week deposit rates.
The application of this aliquot is made of all the operations that remain open for more than a day, and the calculation is daily.
CFDs that support this cost are all the Ayondo CFDs, except for CFDs futures and SB futures.
To better understand this, let’s look at two more examples, the first in case of purchase and the second in case of sell.
Ayondo CFD Buy
Apple’s shares with Trade Value of $ 300,000.00 and Margin req. 10% or $ 30,000.00 (for convenience we do not calculate the currency exchange and we suppose to trade directly in USD and not in EUR).
The funding provided is equal to:
Market equivalent $ 300,000.00 – $ 30,000.00 Real investment exposure = $ 270,000.00 (amount that is lent by Ayondo to make you work with the counter value of $ 300,000.00).
On the amount of $ 270,000.00 is applied the one-week interest on deposits, plus a spread of 2.5%. If we assume that the interest on one week deposits is equal to 1%, the calculation to be done will be:
– [$ 270,000.00 * (3% + 2.5%) * 1/360] = $ -41.25 (value subtracted from the counter value of the transaction)
The 1/360 value is used because the applied rates are values calculated on annual basis, even though they refer to the one week deposits. Since the calculation is performed every day the operation has been kept open, the result must be divided by 1 day / 360gg.
Ayondo CFD Sell
Let’s always take the example of the Apple’s stock with Trade Value of $ 300,000.00 and Margin req. 10% or $ 30,000.00.
In this case we do not buy it, but we sell it.
Since this one is a short sell operation, we are the ones that are lending funding to the broker:
Market equivalent $ 300,000.00 – $ 30,000.00 Real investment exposure = $ 270,000.00 (amount that is lent to Ayondo to operate the equivalent of $ 300,000.00)
On the amount of $ 270,000.00 the interest of the one week deposits is applied, less a 2.5% spread. If we assume that the interest on weekly deposits is equal to 3%, the calculation to be done will be:
$ 270,000.00 * (3% -2.5%) * 1/360 = $ 3.75 (value subtracted from the value of the transaction).
The Variety of Underliyings with Ayondo Cfds
The selection of indices is good, thanks to Ayondo CFDs you will be able to wander among the main world markets indices (America, Europe, Germany and Asia), with variable spread depending on the market. The minimum margin requirement is 1% and the spread required to operate is between 0.1 and 40 points.
The offer includes 36 currency pairs, all the major and minor are present, including even some exotic exchange rate (though not all). The minimum margins required to negotiate them ranged between 0.8% and 10%. Spreads vary greatly, mainly depending on the liquidity of the instrument.
For what regards commodities, the supply of Ayondo CFDs ranges from metals, energy, soft commodities and spot metals. For each of these categories you can negotiate the principal representatives of the sector. The required minimum margins ranging from 2% to 5%, with spreads starting from 0.03 (depending on the underlying).
Recently introduced, there are the most liquid and famous:
- Powershares QQQ Nasdaq
- SPDR DJIA Trust
- SPDR Gold Trust
- SPDR S & P 500 ETF Trust
- Vanguard MSCI Emerging Markets
- ishares FTSE 100
- ishares Silver Trust
Interest Rates & Bonds CFD
The offering here ranges between interbank rates and bond futures. The countries for which it is possible to trade the rates are: UK, America, Germany and Europe, with a minimum margin requirements ranging from 0.5 to 2%.
Stock CFDs refer to larger capitalization companies and the most liquid ones. The shares relate to listed companies on the British market, Germans, Americans, French, Dutch, Belgians, Swiss, Irish, Italian, Spanish, Portuguese, Swedish, Danish, Hong Kong and Singapore. Spreads and margins vary greatly from the price of the stock and the type of market.
Ayondo’s CFD: Conclusion and Opinions
Ayondo’s CFDs are valuable tools to be able to operate on different markets and several underlying very different from one to another, but using a single intermediary, Ayondo precisely.
With the ability to modulate the margin for every single position, the trader has the ability to exploit a strong leverage effect, but also to greatly diversify the investments despite having modest sums.
An element of attention is certainly the cost to operate with these instruments. The cost are essentially two:
- The cost of intermediation: This cost is usually represented by the commissions that are perceived by the broker to give you the possibility to trade on the market. With the Ayondo’s CFDs, the transaction commission fee is replaced by simply widening the spread between the Bid-Ask prices, a common practice for those who provide brokerage services for these tools.
- Cost of position funding: We already illustrated it with some examples just a few lines before. It’s a cost or gain (depending on whether the operation is made buying or selling, and depending on the Libor rate on which it is based) which is applied only for those positions that are held overnight, i.e. for more than one day.
In conclusion, let’s consider that, in order to negotiate on the whole variety of tools with which you can work through Ayondo, you would require at least a couple of different Brokers (if not more).
This means opening different deposits, which have a cost in terms of taxes and maintaining.
Keeping this in mind, the two costs you must sustain to operate with Ayondo’s CFDs are very reasonable, if not competitive if you compare them to the ones offered by other brokers or other Social Trading company.