CFD trading examples
Let’s take a look at a long and a short CFD trading scenario
Going long
With CFD trading your profit or loss is determined by the difference between the buy and the sell price of the financial instrument that you are trading. Imagine this scenario about a fictional oil company called North Sea Oil PLC (NSO):
Placing a trade
North Sea Oil Plc is trading at 15.99/16.00. You think the price is going to rise in value so you decide to go long and buy 1000 NSO CFDs at €16. 1000 CFDs at €16 giving you a position size of €16,000 (1000 x €16 = €16,000).
Margin
The margin requirement with CMC Markets for NSO is 10%, therefore €1,600 will be allocated from your account against this trade as initial margin.
€16,000 x 10%= €1,600.
Remember if the share price moves against you, it is possible to lose more than this €1,600 initial margin.
Commission charge
Equity CFDs attract a commission charge of 8 basis points. One basis point is 0.01 of a percentage point. To determine how much commission you would pay, you multiply your position size by the commission charge. In this example the charge is €12.80 (€16,000 x 0.08%=€12.80).
Your open position
You now hold a position of 1000 NSO CFDs with a value of €16,000. Later that day you notice that the NSO share price has risen to 16.25/16.26. This would mean that your previous assumption that the price would go up was right. You chose to close your position and sell at €16.25.
Closing the position
You originally bought at €16 and sold at €16.25 which means NSO rose by €0.25. €0.25 x 1000 CFDs = €250 revenue. The commission charge of 8 basis points will also apply to the closure of the trade, equalling €13.
Your profit and loss
After deducting the commission charges from the total revenue you realise a profit of €224.20. Had the market moved against you (i.e. the share price of NSO had fallen in value) by 25 points you would have lost €250 plus commission.
Going short
With CFD trading your profit or loss is determined by the difference between the buy price and the sell price of the financial instrument that you are trading. Imagine this scenario about fictional oil company called North Sea Oil PLC (NSO):
Placing a trade
North Sea Oil Plc is trading at 1599/1600. You think that the price is going to fall in value so you decide to go short and sell 1000 NSO CFDs at €15.99. 1000 CFDs at €15.99 gives you a position size of €15,990. 1000 x €15.99 = €15,990. As the margin requirement for this share is 10%, only €1,599 is allocated from your trading account as a deposit.
Closing your position
The market falls 49 points in your favour and you decide to close out your position and realise a profit. You buy 1000 NSO CFDs at €15.50 to close your NSO position and make €490 profit. As per the long trade example, you will need to deduct commission charges and any other financing charges to realise your net profit. Had the market moved against you by 49 points, you would have lost €490 plus commission.