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. Imagine this scenario about fictional Canadian oil company Oil Sands Inc (OSI):
A long share trade
Placing a trade
Oil Sands Inc 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 OSI CFDs at 16.00
1000 CFDs at 16.00 giving you a position size of $16,000. 1000 x 16.00 = $16,000
Margin
The margin requirement with CMC Markets for OSI is 15%, therefore $2,400 will be allocated from your account against this trade as initial margin.
$16,000 x 15%= $2,400
Remember if the share price moves against you, it is possible to lose more than this $2,400 initial margin.
Commission charge
Canadian Equity CFDs attract a flat commission charge of $5.00.
In this example the charge is $5.00
Your open position
You now hold a position of 1,000 OSI CFDs with a value of $16,000
Two days later you see that Oil Sands Inc has risen to 16.25/16.26. This would mean that your previous assumption that the price would go up was right. You choose to sell at 16.25 and realize your profit.
Closing the position
You originally bought at 16.00 and sold at 16.25 which means OSI rose by 25 cents.
25 cents x 1,000 CFDs = $250 gross profit.
The commission charge of $5 flat will also apply to the closure of the trade, equalling $10.00
You held the position for two days which means you incurred two nights financing charge.
This equals $16,000 (value of the position) x 85% (the amount borrowed) x Corra (Candian Overnight Repo Rate Average) + 2.5% (in this instance CORRA is 1% so 1% + 2.5% = 3.5%) /360 (number of days in the year) x 2 (number of days position is held) = $2.64
CORRA + 2.5% is the overnight rate at which CMC Markets calculates long positions in Canadian equities. To calculate financing on equities from alternative countries use the corresponding country’s overnight lending rate i.e LIBOR in the UK.
Your P&L
After deducting the financing and commission charges from the gross profit you realize a net profit of $237.36
Had the market moved against you (i.e. the share price of OSI had fallen in value) by 25 cents you would have lost $250 plus commission and financing.
Examples used are for illustrative purposes only and not to be misunderstood as a recommendation. Real market conditions will vary the results.
