CFD Trading: Going Long – Making a Profit

In this CFD trading example we will be going long and making a profit. Going long means you buy a CFD to open your position with the view of making a profit from the increase in price of the underlying security. You realise the profit by selling at a higher price than the price at which you bought your CFD.

Let’s commence our profitable Share CFD trade example; note that these are all automatically calculated by your CFD provider, the example is used to illustrate the mechanics of your trading accounts’ inner workings.

Let’s say you’ve got $10,000 in your trading account with no current open positions. You spot a trading opportunity for a CFD for XYD Widgets Company and you decide to enter in the trade.

The XYD CFD is quoted at 30.00/30.02 (bid price/ask price). You decide to buy 2,000 XYD Share CFDs at the offer price of $30.00. At this point your broker may have fees deducted from the trade: let’s say the broker’s commission is at 0.1% of the trade so: 2,000 Share CFDs x $30 x 0.1% = $60 commission.

Your trading account is currently at $10,000 – $60 = $9,940. Your margin requirement for holding the CFD position currently stands at: 2,000 CFDs x $30 x 10% (say XYD has a 10% margin requirement by your CFD broker) = $6,000. Therefore your total margin requirement for holding XYD CFD is $6,000. And therefore your total free equity in your account is: $9,940 – $6,000 = $3,940. (Free Equity which is available for you to trade with minus margin requirements).

You hold the position overnight and the next day you are charged with a financing fee: (Number of CFDs held * Closing price * Financing Rate / 365). Your account finished the day at $9,940. The financing charge is: (2,000 x $30) x 5% / 365 = $8.22.

Before we complete the calculation – say the share price gapped at opening to $31.00/01 you would have earned some profit: ($31-$30) x 2,000 = $2,000. Therefore your CFD Trading account now stands at $9,940 – $8.22 + $2,000 = $11,931. At this point you can also calculate your margin requirements and your total free equity.

Later that afternoon you decide to exit your CFD trade and you close off you position by selling your XYD Share CFDs at the bid price of $31.00.

We will now calculate your total equity. When you close a position you have a 0.1% commission to pay: 2,000 CFDs x $31.00 CFD price x 0.1% commission = $62.

After you sell your position you are no longer bound by any margin requirements. Once you have completed your trade, your CFD trading account will now have: $11,931 – $62 = $11,869. Total profit from the single long Share CFD trade after all the fees and charges is $11,869 – $10,000 = $1,869.

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