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Derivitatives - break-even transaction

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mehroon
Frequent Contributor
Forumites can you help me with this one. If I buy/sell either instrument at R10 underlying, at which price (underlying) must I sell/buy the instrument to break even? Thanks.
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6 REPLIES 6
NJ_1
Frequent Contributor
If I'm understanding your question correctly then you will break even when the growth in the price of your derivative has covered the fees that you had to pay to do the buy transaction. The fees in turn depend on the volume of your trade, which derivative you are buying, etc. Also remember that you will incur further costs when you sell, so your growth has to cover both the fees for the buy transaction and the fees for the sell transaction, in order for you to break even. That is true not only for derivatives, but also for shares. Finally, how much the underlying needs to move to get you to that break-even point depends on the gearing that the derivative offers you. So, there is no one correct answer to your question - it depends on your fees, your derivative type and your gearing.
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mehroon
Frequent Contributor
I am thinking of a future or cfd where the gearing is say 10. Could you perhaps help me further NJ? You could illustrate it with the future for CFR. I am presently short with this one. Sold CFD at 3395 underlying today and sold future again at 2425 underlying. Losing nicely at the moment. Thanks
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Nice answer. The truth, the whole truth and nothing but the truth. Monitor the fees. I bought a small amount of warrants and had to wait for a hefty climb in price (2-3c) before I could break even. The next time a bought a lot more and a 1c climb put a smile on my face.
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best way to understand the breakeven is to model the cashflows in a spreadsheet with changeable inputs.
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mehroon
Frequent Contributor
My quantities are 2500 CFD's and 20 futures both sold at underlying underlying 3395 and underlying 3424 respectively. To what price must CFR drop for break-even?
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Equation is simple. At 3340 for the CFD, OST charges a 0.04% commision with a minimum of R45 (sorry if the charges are not correct - I think this is what it is). So to keep the 0.04% comms, you need to buy 34 shares (less than that, and your comms grows bigger than 0.04%). so for 0.04% on the buy, and again on the sell, you need to make 0.08% growth. Actually, it is a bit more, 0.09% because of the increased comms on the sell side. Lastly, you need to factor in the interest charge. Interest is charged at JBAR + x on your total exposure. So the longer you hold, and the more your stock grows, the bigger your breakeven point gets. With SSF's, the calculation is more complex, because the interest is already factored into the contract. But OST has a very useful spreadsheet somewhere in the help section for working out hte costs.
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