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 oil company called North Sea Oil PLC (NSO):
A long trade
Placing a trade
North Sea Oil Plc is trading at 1599/1600. You think the price is going to rise in value so you decide to go long and buy 1000 NSO CFDs at 1600
1000 CFDs at 1600p giving you a position size of £16000. 1000 x 1600p = £16000
Margin
The margin requirement with CMC Markets for NSO is 10%, therefore £1600 will be allocated from your account against this trade as initial margin.
£16000 x 10%= £1,600
Remember if the share price moves against you, it is possible to lose more than this £1,600 initial margin.
Commission charge
Equity CFDs attract a commission charge of 8 basis points. One basis point is 0.01 of a percentage point. To determine how much commission you would pay, you multiply your position size by the commission charge.
In this example the charge is £12.80 (£16000 x 0.08%=£12.80)
Your open position
You now hold a position of 1000 NSO CFDs with a value of £16,000
Later that day you notice that the NSO share price has risen to 1625/1626. This would mean that your previous assumption that the price would go up was right. You chose to close your position and sell at 1625p.
Closing the position
You originally bought at 1600p and sold at 1625p which means NSO rose by 25 pence.
25pence x 1000 CFDs = £250 revenue.
The commission charge of 8 basis points will also apply to the closure of the trade, equalling £13.00
Your P&L
After deducting the commission charges from the total revenue you realise a profit of £224.20
Had the market moved against you (i.e. the share price of NSO had fallen in value) by 25 points you would have lost £250 plus commission.
