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
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