Perhaps one of the easiest ways to get to understand CFD trading is to look at example trades. The examples below cover going short or long on a stock index market.
Wall Street is priced at 10,940-10,941.8.
This means you can 'sell' at 10,940 if you expect the price to drop, or 'buy' at 10,941.8 if you expect it to rise.
|Expecting the price to drop, you 'sell' three contracts at 10,940.||Anticipating a rise, you 'buy' three contracts at 10,941.8.|
|You need to put down a deposit of 5% of the trade's value.||You need to put down a deposit of 5% of the trade's value.|
|One contract is the equivalent of $10 per point, so you'll make or lose $30 for every point the price moves from 10,940.||One contract is the equivalent of $10 per point, so you'll make or lose $30 for every point the price moves from 10,941.8.|
|The market drops to 10,843.2-10,845.||The market drops to 10,843.2-10,845.|
|You take your profit and close the trade, 'buying' three contracts at 10,845.||You cut your losses and close the trade, 'selling' three contracts at 10,843.2.|
Your profit is calculated as follows:
Opening price 10,940
Closing price 10,845
Profit: 95 x 3 contracts x $10 = $2850
Your loss is calculated as follows:
Opening price 10,941.8
Closing price 10,843.2
Loss: 98.6 x 3 contracts x $10 = $2958
To calculate the net result of this example you also have to include interest and dividend adjustments. Interest adjustments are applied daily to stock index trades in the same way as to Share CFDs. Dividend adjustments are applied whenever a stock in the relevant index goes ex-dividend.
CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial investment, so please ensure that you fully understand the risks involved.