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Safe investment funds

Safe investment funds: bond funds

Bond funds invest mainly in corporate bonds or government bonds. They receive interest for buying bonds, because the fund lends money to certain companies or governments. Bonds are therefore a very safe way to invest. However, bonds can yield less return.

What is a bond fund for?

Many people prefer to invest in a variety of bonds rather than just one particular bond. This is because with one particular bond one can be highly dependent on one debtor. This can result in the bond evolving negatively during the term.

  • A bond fund can be compared to a basket. It is a fund that invests in bonds. Because various debt instruments from multiple institutions are put into a specific bond fund, there is a lower risk than with one specific bond.

How is it possible for a bond fund to offer investors a return?

  • The interest payment: The issuers of various individual bonds are required to provide interest compensation. They do this in exchange for debt paper. Then all the compensations end up in a pot, after which they will be divided among the fund holders of a certain bond fund.
  • A fall in fixed interest rates on the market causes an increase in value: A bond fund or a bond can become more valuable when interest rates on the market fall . This is the case when one has a bond or bond fund at a fixed interest rate, but one also has a fixed term. An example: one has a bond with a term of 5 years with an interest rate of 10%. Three years later, the interest rate on the market has fallen to an interest rate of only 8%. This bond therefore increases in value, because other investors are prepared to buy the bond above its value.


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  • An increase in the fixed interest rate in the market leads to a decrease in value: It can also happen that the opposite happens. When the interest rate increases, a bond will decrease in value and the listing will decrease. Bond funds not only function as a spread of risk, but they are also permanent structures. It is namely possible to exit or subscribe at any time. Because bond funds contain many individual funds together in one package, new funds can be purchased or ongoing funds can expire. It is not important that one pays attention to this oneself, because the investment will continue by itself. However, one will find out that the return of a certain bond fund is not fixed. This is caused by permanent renewal. This depends on the possible decrease or increase in the risk level of the issuers

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CFD short position

CFD Trading: Going Long CFD stands for Contract for Difference . This is a simple way to trade that allows you to make the most of your money. A Contract for Difference is a binding contract, where the seller or buyer will pay the difference between the current value of a share and a future value, to the other at the time the buyer chooses to close the contract. Is the value greater? Then the seller of the contract (the broker) pays the buyer. Has the value decreased? Then the buyer must pay more to the seller. A CFD is a derivative , meaning that it derives its value from an underlying asset, often a stock or a market index. As the buyer of a CFD, you do not own the underlying asset and are never entitled to it. It is only used to value the contract. Taking a long position with CFDs ‘ Going long ‘ is simply buying a CFD position when you expect  the stock price  to rise. A ‘long position’ is taken when an investor believes the market will rise. This is a common way to  trade CFDs . Going long in CFDs is similar to the position you would take when buying shares, for example. As a trader, you first buy the position and then sell it at a later date to close out the trade. The difference between the purchase price and the sale price is the profit or loss made on the trade. The opposite of ‘going long’ is ‘going short’ or taking a ‘short position’. In this case you assume a decrease in value from which you can profit. Buy CFD: margin When you go long with CFDs, you don’t need to have enough money to buy the asset you are trading. The amount of money you need, or ‘margin’, depends on  the broker  and what you are trading. For example, for shares you might need 10% and for other securities it might be even less. This leverage allows you to make the most of your money, as the contract still benefits from the amount the asset changes in value. Simply put, if you only put down 10% and the underlying share increases in price by 10%, you have doubled your money. We will illustrate this with an example in which we also include the necessary incidental costs that come with CFD trading. Suppose you expect the shares of company X, which currently cost €1.25, to increase in value. You want to take a long CFD position for 1000 shares. The value of this is €1500, but you do not need that much cash. CFDs of 10% require a deposit of only €150. You also pay a small commission ( a spread ) to the broker. Two weeks later, the shares have each risen to €1.35 and you decide to close the CFD position. For every day that you hold CFDs, interest is charged. In effect, you are borrowing money to maintain your position in the shares. This interest is related to the bank interest rate. For this example, we assume that the interest is €5. You close the position with a profit of 10 cents per share and have to pay a trading commission again. The net profit is 1000 x 10 cents, minus two commissions and the interest, which totals €95. This is a profit of more than 60% of the stake. Long CFD trading, a profitable example To open a long position, you will need to place an order to buy the CFD you want. Each broker will use a slightly different method to place orders, but if you have bought a stock before, it is very easy to make the transition to CFDs. To go short, you need to place an order to sell the CFD. The way the order is placed depends on the broker you use. Opening the position Let’s say company XYZ is listed at €4.24 / 4.25. You expect the price to rise and decide to buy 15,000 shares as a CFD at €4.24. This bid price gives you a position size of €63,600 (15,000 x €4.24). Next, we assume a margin requirement of 10%. When placing the order, €6,360 is allocated from your account to the trade as initial margin. Be aware that if the position moves against you, i.e. the price falls instead of rising, it is possible to lose more than this margin of €6,360. For the same amount, you could only buy 1,500 shares with a regular stockbroker. In this example, commission is charged at 10 basis points (one basis point is 0.01 percentage points). So the commission on this trade is only 0.1% or approximately €63 (15,000 shares x €4.24 x 0.1%). You now have a position of 15,000 XYZ CFDs worth €63,600. Close CFD position A month later, the price of XYZ has risen to €4.68 / 4.69. Your expectation that the price would rise proves correct and you decide to take your profit. You sell 15,000 shares at the bid price, €4.68. The commission of 10 basis points will also apply to the closing of the transaction and amounts to €70 (15,000 shares x €4.68 x 0.1%). The gross profit on the transaction is calculated as follows: Slot level: €4.68 Opening level: €4.24 Difference: 0.44 Gross profit on the trade: €0.44 x 15,000 shares = €6,600. After deducting the commission costs (€63 + €70) from the total turnover, you realise a profit of €6,467. To determine the total profit on the transaction, you must also take into account the commission you paid and interest and dividend adjustments. Long CFD trade, a loss-making example It is also possible that the CFD does not do what you expected in advance and decreases in value while you have opened a long position. With this calculation example we show what the financial consequences of this are. Shares in company ABC are traded for €8.33 / €8.34. You think the price

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