It's helpful to understand CFD trading by working through an example. Here we look at how to go short or long on a stock index market.
Our quote for Wall Street stands at 10940-10941.8.
This means you can 'sell' at 10940 if you think the price will fall, or 'buy' at 10941.8 if you think it will rise.
|You think the market is due to fall, so you choose to 'sell' three contracts at 10940.||You think the market is due a rise, so you choose to 'buy' three contracts at 10941.8.|
|You need to put down a deposit of $1800 ($600 per contract).*||You need to put down a deposit of $1800 ($600 per contract).*|
|One contract is the equivalent of $10 per point, so you'll make or lose $30 for every point the price moves from 10940.||One contract is the equivalent of $10 per point, so you'll make or lose $30 for every point the price moves from 10941.8.|
|The market falls and a few days later our quote is 10843.2-10845.||The market falls and a few days later our quote is 10843.2-10845.|
|You decide to take your profit and close the trade, 'buying' three contracts at 10845.||You decide to cut your losses and close the trade, 'selling' three contracts at 10843.2.|
Your profit is calculated as follows:
Opening price 10940
Closing price 10845
Profit: 95 x 3 contracts x $10 = $2850
Your loss is calculated as follows:
Opening price 10941.8
Closing price 10843.2
Loss: 98.6 x 3 contracts x $10 = $2958
To calculate the overall result on the transaction you would also have to take into account the interest and dividend adjustments.
*Based on the initial margin rate available to Trader Account holders.
CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.