CFD trading examples

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Want to start trading CFDs but don’t know how? Our CFD examples will help you open and close trading positions, as well as calculate profit or loss on trades.

At first glance, CFD trading may seem more complicated than traditional trading, but as you will see from these examples, this is not necessarily the case.

CFD example 1: buying ABC plc

In this example, the CFDs on ABC plc shares are trading at a sell/buy price of 1,599/1,600p. Suppose you want to buy 1,000 CFDs on the shares (units) because you believe the price will rise. ABC plc has a tier 1 margin rate of 5%, which means that you only need to deposit 5% of the value of the position as position margin.

In this example, the margin on the CFD would be £800 (5% x (1,000 unit’s x 1,600p per purchase)). Remember that if the price moves against you, you could lose more than your initial position margin of £800.

Outcome A: a profitable trade

Your forecast turns out to be correct, and within the next hour, the price rises to a sell/buy price of 1,625/1,626. You decide to close your position by selling at 1,625 (the new sell price).

The price has changed by 25 pips (1,625 – 1,600) in your favor. Multiply this amount by your position size (1,000 units) to calculate your gross profit, which is £250.

The total commission for opening and closing a buy position is calculated as follows:

1,000 (units) x 1,600p (price) x 0.10% = £16.00

1,000 (units) x 1,625p (price) x 0.10% = £16.25

Total commission = £16.00 + £16.25 = £32.25

So your total profit on ABC plc is your gross profit minus your total commission.

£250 – £32.25 = £217.75 net profit

Outcome B: a losing trade

Unfortunately, your prediction turns out to be incorrect, and over the next hour, the price of ABC plc falls to a sell/buy price of 1,549/1,550. You believe that the price is likely to continue falling, so to limit your potential losses, you decide to sell at 1,549 (the new sell price) to close the position.

The price has moved 51 points (1,600 – 1,549) against you. Multiply this amount by your position size (1,000 units) to calculate your loss, which is £510.

The total commission for opening and closing a buy position is calculated as follows:

1,000 (units) x 1,600p (price) x 0.10% = £16.00

1,000 (units) x 1,549p (price) x 0.10% = £15.49

Total commission = £16.00 + £15.49 = £31.49

So your total loss on ABC plc is your total loss + total commission.

£510 + £31.49 = £541.49 net loss

CFD example 2: selling ABC plc

In this example, CFDs on ABC plc shares are trading at a sell/buy price of 1,599/1,600p. Suppose you want to sell 1,000 CFDs on the shares (units) because you believe the price will fall. ABC plc has a tier 1 margin rate of 5%, which means that you only need to contribute 5% of the total value of the position from your funds as position margin.

In this example, your position margin would be £799.50 (5% x (1,000 unit’s x 1,599p sale price)). Remember that if the price moves against you, you could lose more than your original position margin of £799.50.

Outcome A: a profitable trade

Your prediction turns out to be correct and over the next hour, the price falls to a sell/buy price of 1,549/1,550. You decide to close your trade by buying back at 1,550p (the new buy price).

The price has changed by 49 pence (1,599 – 1,550) in your favor. Multiply this amount by your position size (1,000 units) to calculate your profit, which is £490.

The total commission for opening and closing a sell position is calculated as follows:

1,000 (units) x 1,599p (price) x 0.10% = £15.99

1,000 (units) x 1,550p (price) x 0.10% = £15.50

Total commission = £15.99 + £15.50 = £31.49

The total profit on a successful transaction with ABC plc is therefore equal to the gross profit minus the total commission.£490 – £31.49 = £458.51 net profit

Outcome B: a losing trade

Unfortunately, your prediction turns out to be wrong and over the next hour, the price of ABC plc rises to 1,649/1,650. You decide to cut your losses and buy at 1,650 (the new buy price) to close your position.

The price has moved 51 points (1,650 – 1,599) against you. Multiply this amount by your position size (1,000 units) to calculate your losses, which will be £510.

The total commission for opening and closing a sell position is calculated as follows:

1,000 (units) x 1,650p (price) x 0.10% = £16.50

1,000 (units) x 1,599p (price) x 0.10% = £15.99

Total commission = £16.50 + £15.99 = £32.49

The total loss on the ABC plc transaction is therefore equal to the gross loss + total commission.

£510 + £32.49 = £542.49 net loss

Calculating CFD profits and losses

Our CFD examples are a good way to learn how CFD trading works, as they help you see a trade in practice to fully understand the trading process. Whether you are a novice or an experienced trader, these examples will help you visualize the execution of a trade and the profit or loss you make.

Profit or loss is determined by the difference between the price at which you enter a trade and the price at which you exit it. Remember that prices are always listed to the left of the sell price and the right of the buy price. Read more about the bid price and ask price.

CFD trading for beginners

When starting to trade CFDs (CFDs) as a beginner, you must first understand the basics of CFD trading. Check out our CFD trading examples and consider opening a CFD demo account where you can practice risk-free trading.

Once you have mastered the basics, you can move on to more in-depth technical and fundamental analysis. However, for beginner traders, our examples will help you understand the CFD trading process and determine profit and loss. You should also be aware of the costs associated with CFD trading.

Explanation of CFD trading

CFD trading allows you to speculate on the price movements of a range of financial instruments. You can choose to go long and “buy” if you believe the market price will rise, or go short and “sell” if you believe the market price will fall. You do not own the underlying asset you are speculating on and are therefore exempt from paying stamp duty. Find out more on our ‘The Value of CFDs’ page to determine if they are right for you.

Explanation of commission

CFD commission only applies to equity CFDs. As such, there are no fees for opening and closing positions in all forex instruments, indices, cryptocurrencies, commodities, and treasuries. When trading CFDs on shares, a commission is charged for each trade. Equity trades in the UK cost 10 basis points (0.10%) and the minimum commission per trade is £9.

To determine the commission, multiply your position size by the appropriate commission rate. Read more about CFD commissions here.

Explaining the cost of holding

If you hold any position after 5 p.m. New York time, you will be charged a CFD hold cost and, if the position has a fixed expiration date, this cost is included in the product price.

We calculate the retention rate applicable to the holding cost based on the risk-free or interbank rate of the currency in which the product is denominated. For example, for UK 100 (sterling), the Sterling Overnight Index Average (SONIA) interest rate benchmark is used. For buy positions, we charge 0.0082% over SONIA and for sell positions, you receive SONIA minus 0.0082%, unless the benchmark risk-free rate is equal to or less than 0.0082%, in which case there may be a holding cost on the sale.

You can view the historical holding cost by selecting the account menu and then the History tab.

FAQ

What is CFD trading?

CFDs (contracts for difference) are a popular form of derivative trading that allows you to speculate on price fluctuations in a variety of markets, including forex, indices, commodities, stocks and treasuries. When you trade CFDs, you speculate on price changes without ever owning the underlying asset. Familiarize yourself with the risks of CFDs and the benefits of CFDs to decide if they are right for you.

How does CFD margin work?

A CFD’s margin requirement is the necessary deposit required to gain access to a larger amount of money in a trade. Trading with a margin requirement that is a percentage of the full value of the trade is also known as leveraged trading. When a customer deposits the margin requirement, the remaining amount is essentially “borrowed” from the broker. Learn more about margin trading.

How do I calculate profit on CFDs?

If you take long positions (where you assume the market price will rise), you can calculate the profit from this type of CFD trading by taking the price at which you sold (the sell price) and subtracting the price at which you bought (the buy price). Once you have this amount, you multiply it by your position size to calculate your profit. Note that there are additional costs involved, such as spread and commissions. These can be found on the CFD Trading Costs page.

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