Currency Conversion Charge Calculation Query

Hello everybody,

I have a doubt on how it works the currency conversion charge of 0.5% for the CFD.

Let us make an example.

I buy 1,000 of a security X in USD, while my account is in EUR. The leverage is 1:10.

Date 01/01/2020. I buy the security X:

  • USD/EUR: 0.85
  • Buy @ 15.000 USD per share
  • Quantity: 1,000
  • Total amount bought: 1,000 x 15.000 USD x ?
  • Margin: 10% x 1,000 x 15.000 USD x ?
  • SWAP: -0.001 x 1,000 x ?

Possible scenarios for the variable ?:

  • ? = 0.85
  • ? = 0.85 x (1+0.5%)
  • ? = 0.85 x (1-0.5%)

After 15 days I sell the security X. Thus:

  • USD/EUR = 0.90
  • Sell @ 16.000 USD per share
  • Quantity: 10,000
  • Total amount sold: 1,000 x 16.000 USD x ?

Possible scenarios for the variable ?:

  • ? = 0.90
  • ? = 0.90 x (1+0.5%)
  • ? = 0.90 x (1-0.5%)

Finally:

PROFIT / LOSS = Total amount bought – Total amount sold – SWAP x days

Anyone from Trading 212 can clarify how to calculate the value for “?” when buying and when selling in the above example?

Thank you.
Ado

While waiting for @Team212 to comment I am tempted to test my understanding by making guesses. My understanding is that the 0.5% currency conversion fee only applies to the result, so

First scenario ?=0.85. Second scenario ?=0.90.

Profit = (16000-15000)x(0.90x0.995) - SWAP fees

I would expect the SWAP fee to be computed each day using whatever is the exchange rate at 10pm that day.

You ask a good question. It ought to be possible to find a clear example of how this calculation is done within the help pages.

Can anybody help to figure this out?

I am interested in exactly how the currency conversion charge is applied to CFD trades also.

It would be good if someone from the trading 212 could respond to clarify this.

@MitchB, whenever I want to get a reply on the forum I tend to tag the team or someone from it.
@Team212 @David
Who is the best person to clarify this?

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Hi @David

Thank you for your reply.

I have already read that explanation before posting the question here. However, Martin’s example raised some doubts since it did not take into account the exchange rate fluctuation.

Let’s take the example made by Martin and adding the USD/GBP exchange rate at the entrance of the position. Let’s assume it was 0.8532.

MARTIN’S EXAMPLE:

  • Account in GBP
  • Long position with the Apple CFD at 241.27 USD
  • Exit from the position at 245.35 USD
  • USD/GBP exchange rate at the closure of the position: 0.8126
  • Quantity traded: 10 units

PROFIT or LOSS = [Quantity x (Closing Price - Opening Price)] x (0.8126 x 0.995) = 10 x (245.35 USD - 241.27 USD) x (0.8126 x 0.995) = 32.99 GBP (PROFIT)

Lets’ now re-run the same example but adding the:

  • USD/GBP exchange rate at the entrance of the position: 0.8532
  • BOUGHT = Quantity x Opening Price x 0.8532 = 10 x 241.27 USD x 0.8532 = 2,058.52 GBP
  • SOLD = Quantity x Closing Price x (0.8126 x 0.995) = 10 x 245.35 USD x (0.8126 x 0.995) = 1,983.75 GBP

PROFIT or LOSS = BOUGHT – SOLD = 2,058.52 GBP – 1,983.75 GBP = -74.77 GBP (LOSS)

Have I made the point? Comments?

@Ados83 That’s how CFDs are built - they don’t take into account the FX rate fluctuations since there’s only one conversion - at position close, no conversion when opening the position.

They were built this way in order to simplify things, however, this logic is likely to change in the future. So, in essence, Martin’s example is correct.

1 Like

@David

Thank you for clarifying this.

Ado