Opening a long CFD position
A trader wants to buy 10,000 shares of Company X as a CFD. The CFD company set a margin of 20% and quote:
370.5 sell price
372 buy price
The trader needs to calculate the initial financial requirement so he knows how much money is needed in his account in order to open the long CFD position.
20% margin cost of 10,000 shares at buy price 372
372p x 10,000 = £37,200.00
20% of £37,200.00 = £7440.00
£7440.00 is the initial margin requirement before taking commission into account.
Commission in this example is 0.25%.
10,000 shares x 372 buy price x 0.25 % = 93
The trader pays £93 commission
Closing and calculating overall result
In this example the CFD was open for 51 days and no dividends were paid.
The interest calculation is as follows
372p x 10,000 = 37,200 x 5% =1860 ÷ 365 = £5.10,
The interest paid by the trader is £310.00. It is not as simple as multiplying the daily rate by 51 as the prices fluctuate on a daily basis, which affects the interest rate.
The share has moved in his favour. The quote on closing the position is:
405 sell price
407 buy price
The trader bought the cfd at 372
The trader sold the cfd at 405
The difference is 33
A profit of 33p has been made on each of the 10,000 shares.
33p x 10,000 = £3,300.00
Commission is also deducted on the sell price.
10,000 x 405p x 0.25% = 101
The sell price commission is therefore £101.
Final calculation
Profit on trade £3,300
Buy commission -£93
Sell commission -£101
Interest -£310
Total Profit £2,796
