CFD Examples
It's helpful to understand CFD trading by working through an example. Here we look at long and short positions on two of our popular stock index markets.
Opening the position
It is early October 2011, and after sustained falls in equity indices you decide to take a position on our FTSE 100 market. Our quote is 5109-5110, and as you believe the index will rise in value, you buy one contract at 5110, the offer price. (One contract is the equivalent of £10 per index point.)
Your deposit margin for one contract = £300.
Closing the position
A week later, our quote has risen to 5349-5350 and you decide to close your position by selling one contract at 5349, the bid price.
| Profit on trade | |
|---|---|
| Opening level | 5110 |
| Opening level | 5349 |
| Difference | 239 |
| Profit on trade: 239 x 1 contract x £10 = £2390 | |
Of course, had the market moved in the opposite direction, you would have made a loss that may have exceeded your initial deposit of £300.
To calculate the overall result on the transaction you would also have to take into account the interest and dividend adjustments. Please view our Rates section for a full breakdown, plus our list of margin rates.
Opening the position
It is early October 2011 and you believe that Wall Street is going to continue to fall. Our quote sits at 10940-10942, and you sell two contracts at 10940, the bid price. (One contract is the equivalent of $10 per index point, so for each point of movement you will gain or lose $20.)
Your deposit margin for two contracts = $1200 ($600 per contract).
Closing the position
The following week, against your expectations, the market has experienced a resurgence and our quote has risen to 11050-11052. You are worried that the rally will continue and decide to close your position by buying two contracts at 11052, the offer price.
| Loss on trade | |
|---|---|
| Opening level | 10940 |
| Opening level | 11052 |
| Difference | 112 |
| Loss on trade: 112 x 2 contracts x $10 = $2240 | |
To calculate the overall result on the transaction you would also have to take into account the interest and dividend adjustments. Please view our Rates section for a full breakdown, plus our list of margin rates.
The example above is based on the initial margin rate available to Trader Account holders.
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