CFDs and variation margins

[tom05]

Hi all, I woulld like some info about cfds -
I am learning about them and the risks involved in trading them. My question is : If my cfd account receives a variation margin credit of say $500.00 from my provider and I then sell the cfds at a profit do I also keep the $500.00 my provider has credited to my account? . If I dont keep it what happens to it ? Conversely if the price of my cfds goes south and I sell at a loss do I then pay to the provider the amount I owe in my cfd account by way of a debit variation margin, again say $500.00 ( as well as the loss on the cfds)?. I have seen numerous examples of trades showing a calculation of profit or loss but in calculating that profit or loss figure they dont show and no mention is made of the variation margin received from or owed to the provider, which IMO could be a serious misrepresentation.
Would appreciate some advice.
tom05

 

[Krusty the Klown]

CFD's don't operate on a variation margin like futures do.

You only need your initial margin and enough cash in your account to cover the open trade.

If your trade goes against you and you are in a loss situation, you need to have enough available equity in your account to cover the loss. If you don't you will get a margin call.

The paper loss is not debited/credited from your account each night like futures. Your account is only debited or crdited when you close the trade.

Cheers

Krusty

 

[tom05]

Hi Krusty -- Thanks for your reply and apologies for being slow in getting back to you. Just so I am clear on this --
If when I close the trade, my cd provider has credited my account with VM totalling say $1000.00 does that $1000.00 remain credited to my account for use in other trades and then can I eventually withdraw it for my own use e.g to buy a case of good champagne to celebrate my good luck. in other words is it mine. !!!

 

[Krusty the Klown]

Yes, once you close the position the cash is yours to do with what you wish.

Ching,ching!!!