How does a large loss of the underlying asset affect a CFD?
Hello folks,
I'm aware of the risks of CFDs, but I'm just interested in understanding what happens with a CFD on VW shares, for example. If the VW share price loses more than 20% and the leverage is 5, then the value of the CFD would have already fallen by more than 100%. Would the position then be closed automatically? As far as I know, there's no traditional knockout threshold for CFDs. Will the position still be maintained if there's enough margin?
Simple example:
A share costs 50 euros, with a leverage of 1:5 you would only have to pay 10 euros to buy one unit.
Shares lose 40% due to crash, so the CFD position would be 200% in the red, so you need 10 euros more margin to prevent the position from being closed by the broker
Thank you for your help
(1 votes)
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This is a wide country.
cfds per se are fantasy products. One invents them and throws them on the market. There is the question: What does this product look like?
For this, please read the specification of the corresponding cfds. He can map the stock but also options on it.
And yes, they can run quickly in minus when the levers are high.
Tip:
Preferences to options, DIRECT options, so no warrants and the whole certificate. They are traded on the market and there are no crooks on the road that sometimes offer their own somewhat opaque products.
and yes: They are also risky.
If you don’t want to, you can trade the share yourself. If you want to cock, please use options instead of cfds. Cfds are for losers.