Examples
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The best way to understand CFD trading is to work 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 January 2010 and you decide to take a position on our FTSE 100 market. Our quote is 5448/5450, and you buy one contract at 5450, the offer price. (One contract is the equivalent of £10 per index point.)
As a Trader Account holder your deposit margin payment for one contract = £400.
Closing the position
A week later, our quote has risen to 5598/5600 and you decide to close your position by selling one contract at 5598 (the bottom end of our quote).
Profit on trade
| Closing level | 5598 |
| Opening level | 5450 |
| Difference | 148 |
Profit on trade: 148 x 1 contract x £10 = £1480
Of course, had the market moved in the opposite direction, you would have made a loss that may have exceeded your initial deposit.
To calculate the overall result on the transaction you would also have to take into account the commission you have paid and 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.
Opening the position
It is mid January 2010 and you believe that Wall Street is set for a fall. Our quote sits at 10571/10575, and you sell two contracts at 10571, 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.)
As a Trader Account holder your deposit margin payment for two contracts = $1600 ($800 per contract).
Closing the position
The following week, against your expectations, the market has experienced a resurgence and our quote has risen to 10652/10656. You are worried that the rally will continue and decide to close your position by buying two contracts at 10656 (the top end of our quote).
Loss on trade
| Closing level | 10656 |
| Opening level | 10571 |
| Difference | 85 |
Loss on trade: 85 x 2 contract x $10 = $1700
To calculate the overall result on the transaction you would also have to take into account the commission you have paid and 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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