CFD trading example
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.
A commodity trade
Placing a trade
US Crude Oil is trading at 89.93/90.00. 1 US Crude Oil contract provides exposure to 100 barrels of oil, therefore every one cent movement in the price of the US crude oil CFD is equal to $1 per CFD held
You think that the price of Oil is going to rise so you decide to buy 5 US Crude Oil contracts at 90.00. Your position value is therefore $90.00 x 5 x 100 = $45,000
Margin
The margin requirement of oil at the time is 6%, therefore your intial margin deposit is $45,000 x 6% = $2,700.
Commission charge
There are no commissions or financing charges on commodities as they are priced into the contract.
Your open position
You now hold a position of 5 US Crude Oil contracts with a value of $45,000
Later that day US Crude Oil increases to 92.50/92.57.
Closing the position
US Crude Oil increases to 92.50/92.57 so you decide to take profit and sell 5 US Crude Oil contracts at 92.50.
$92.50 x 5 x 100 =$46,250
Your P&L
The net profit is therefore
$46,250 – $45,000 = $1,250
The return on investment is therefore $1,250/2,700 = 46% ROI
The underlying commodity price change was 2.7%
If however the price of the US Crude Oil contract had fallen by 2.7% you would have made a loss of $1,250.
Examples used are for illustrative purposes only and not to be misunderstood as a recommendation. Real market conditions will vary the results.
