CFD trading examples

Your profit or loss is determined by the difference between the price at which you enter a trade and the price at which you exit. Remember that prices are always quoted with the sell price on the left and buy price on the right.

How to trade CFDs

The following five steps provide a brief overview of CFD trading:

Example 1: buying ABC plc

In this example, ABC plc is trading at 1599/1600p. Assume you want to buy 1000 share CFDs (units) because you think the price will go up. ABC plc has a tier 1 margin rate of 5%, which means that you only have to deposit 5% of the position’s value as position margin.

In this example, your position margin will be £800 (5% x (1000 units x 1600p buy price)). Remember that if the price moves against you, it is possible to lose more than your initial position margin of £800.

Outcome A: profitable trade
Your prediction was correct and the price rises over the next hour to 1625/1626p. You decide to close your position by selling at 1625p (the new sell price).

The price has moved 25 pence (1625 – 1600) in your favour. Multiply this by the size of your position (1000 units) to calculate your profit, which is £250.

Outcome B: losing trade
Unfortunately, your prediction was wrong and the price of ABC plc drops over the next hour to 1549/1550p. You feel the price is likely to continue dropping, so to limit your potential losses you decide to sell at 1549p (the new sell price) to close the position.

The price has moved 51 pence (1600 – 1549) against you. Multiply this by the size of your position (1000 units) to calculate your loss, which is £510.​​

Remember, margin requirements are only applicable to net open positions.

Example 2: selling ABC plc

In this example, ABC plc is trading at 1599/1600p. Assume you want to sell 1000 share CFDs (units) because you think the price will go down. ABC plc has a tier 1 margin rate of 5%, which means that you only have to put forward 5% of the total position’s value from your own funds as position margin.

In this example, your position margin will be £799.50 (5% x (1000 units x 1599p sell price)). Remember that if the price moves against you, it is possible to lose more than you initial position margin of £799.50.

Outcome A: profitable trade
Your prediction was correct and the price falls over the next hour to 1549/1550p. You decide to close your trade by buying back at 1550p (the new buy price).

The price has moved 49 pence (1599 – 1550) in your favour. Multiply this by the size of your position (1000 units) to calculate your profit, which is £490.

Outcome B: losing trade
Unfortunately, your prediction was wrong and the price of ABC plc rises over the next hour to 1649/1650p. You decide to cut your losses and buy at 1650p (the new buy price) to close the position.

The price has moved 51 pence (1650 – 1599) against you. Multiply this by the size of your position (1000 units) to calculate your loss, which is £510.

Commission

CFD share trades attract a commission charge for each trade. UK share trades cost 10 basis points (0.10%) with a £9 minimum commission charge per trade​​.

To determine how much commission you would pay, multiply your position size by the applicable commission rate.

In the ABC plc example above, the charge to open a buy position would be calculated as follows:
1000 (units) x 1600 pence (price) x 0.10% = £16.00

The charge to close the buy position would be calculated as follows:
1000 (units) x 1625 pence (price) x 0.10% = £16.25

Holding costs

If you hold any position after 5pm New York time, you will be charged a holding cost. For positions that have a fixed expiry, the cost is built into the price of the product.​​​

We calculate the holding rate applicable to the holding cost based on the interbank rate of the currency in which the product is denominated. For example, the UK 100 (pound sterling) is based on the London Interbank Offered Rate (Libor). For buy positions, we charge 2.5% above Libor and for sell positions you receive Libor minus 2.5%, unless the underlying interbank rate is equal to or less than 2.5%, in which case sell positions may incur a holding cost.

You can view your historic holding costs by selecting the account menu and then the history tab.

View further information on how CFDs work and the benefits of CFD trading, such as going short and hedging physical shares.

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