CFD Trading Example: Margins & Account Insights

CFD Trading Examples

Contract for difference (CFD) trading can be daunting for traders, especially if you’re a beginner. So, we’ve compiled a list of CFD trading examples to help guide traders through opening and closing trade positions and calculating profits or losses from trades.

Buying

For example, JP Morgan Chase & Co (JPM) trades at a sell/buy price of 1,599/1,600p and a trader wants to buy 1,000 share CFDs (units) because they think the price will rise. JPM has a tier 1 margin rate of 5%, meaning traders will only have to deposit 5% of the position’s value as position margin.

In this instance, the trader’s CFD position margin will be £800 (calculated 5% x (1,000 units x 1,600p buy price)). However, if the price moves against traders, it’s possible to lose more than the initial position margin (£800).

For this scenario, there are two possible outcomes:

Making a Profit from Trade

If the prices work in the trader’s favor and rise over the next hour to a selling price of 1,624/1,626, and the trader decides to close their position by selling at 1,625, they will make a gross profit of £250.

The profit is calculated by multiplying the difference between the selling price with the size of your position.

In this case, it’s (1,625-1,600) x 1,000 units = £250.

The total profit on JPM requires subtracting the total commissions from the gross profit. The total commission is calculated as follows:

1,000 units x 1,600 pence (price) x 1.10% = £16.00

1,000 units x 1,625 pence (price) x 1.10% = £16.25

Total commission = £32.25

Total profit: £32.25 + £250 = 282.25

Losing a Trade

If the trader’s prediction is incorrect and the price falls to a sell/buy price of 1,549/1,550, they might sell the trade at 1,549 to close their position and prevent further loss.

The gross loss is calculated the same way as the profit:

(1,600-1,549) x 1,000 units = £510

The total loss includes total commissions and gross loss:

Total commission: [1,000 (units) x 1,600 pence (price) x 0.10%] + [1,000 (units) x 1,549 pence (price) x 0.10%] = £31.49

Total loss: £31.49 + £510 = 541.49

Selling

In a selling scenario, JPM is trading at a sell/buy price of 1,599/1,600p. A trader wants to sell 1,000 share CFDs (units) because they think the price will fall. Similar to the buying example, JPM has a tier 1 margin rate of 5%, meaning traders will only have to deposit 5% of the position’s value as the position margin.

The position margin is calculated as follows:

(5% x (1,000 units x 1,599p sell price)) = £799.50

But again, it’s possible to lose more than the initial position margin.

There are two possible outcomes of selling your trade:

Making a Profitable Trade

If the trader is correct and the sell/buy price drops to 1,549/1,550, and they decide to buy the trade back at its new buy price of 1,550 pence, they will make a profit of £490.

Profit: (1,599-1,550) x 1,000 units = £490

The total profit for this trade is profit minus total commissions:

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

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

Total commission: £15.99 + £15.50 = £31.49

Total Profit: £490 - £31.49 = £458.51

Making a Loss

If the trader was wrong and the price rises to 1,649/1,650, they might choose to cut losses and purchase at the new buy price of 1,650 to close their position.

The loss is obtained by multiplying the size of the position by the difference in the buy price:

(1,650-1,599) x 1,000 units = £510

To calculate the total loss, sum up your gross loss and total commissions:

[1,000 (units) x 1,650 pence (price) x 0.10%] + [1,000 (units) x 1,599 pence (price) x 0.10%] + £510 = £542.49

Calculating Profits and Losses

With these trading scenarios and formulas plotted out for traders to easily visualize, CFD trading is not as complicated as you might think. A trader’s profit or loss is determined by the difference between the price one enters a trade at and the price one exits at.

Learn more about CFD trading for beginners here.

Trade CFDs with TMGM

At TMGM, not only do we offer a wide range of CFD products and a large range of markets such as forex, shares, and cryptocurrencies, but we also value customer experience and transparency. As one of the best providers in the market, we provide many tools and resources for expert and beginner traders.

CFD trading account

Opening a CFD trading account with us is a simple and easy process. And if you are uncertain about CFD trading, we also offer free demo accounts for users to start light and get used to our platform and markets.

Wide range of currencies

We also offer over 50 currencies for traders, from majors, and minors to exotic currencies.

Different trading accounts

TMGM also offers a variety of trading accounts to match the style of traders from all levels. If you are unsure about the type of trading account to start with, TMGM recommends an account based on three simple questions.

Best pricing

With hundreds of tradeable instruments, fast withdrawals, and 24/7 customer support, TMGM aims to combine a transparent trading environment with the best pricing for users.

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