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Example 1 Long Position (Purchaser)

Client A believes that the shares in XYZ are going to move higher and has a sum he wishes to invest to seek to profit to any possible rise in the price of underlying stock - i.e. 'go long'

Sequence of Events

8^th November, the underlying stock is trading at $4.00 per share:

Client A decides to buy 5000 shares as a CFD at $4.00 per share which equals $20,000

Initial margin required (deposit) is calculated at 5% of contract value.

Actual initial margin requirement - i.e. funds required to cover the deposit at the opening of the position - is $1,000

12^th November, price of the underlying stock has risen to $4.75 per share and investor chooses to close the position by selling the CFDs.

When the position is closed, the gross profit made by Client A can be calculated as follows:

8^th November purchased 5,000 CFDs at $4.00 per share

12^th November sold 5,000 CFDs at $4.75 per share

Gross profit on transaction = 0.75c per share x 5,000 CFDs = $3,750

Example 2 Short Position (Seller)

Client B believes that the price of shares in XYZ are going to fall and has a sum he wishes to invest to profit from any possible fall in the price of underlying stock - i.e. 'go short'

Sequence of Events

4^th December, the underlying stock is trading at $5.00 per share

Client B decides to sell 2000 shares as a CFD at $5.00 per share which equals $10,000

Initial margin required (deposit) is calculated at 5% of contract value

Actual initial margin requirement - i.e. funds required to cover the deposit at the opening of the position is $500

15^th December, price of the underlying stock has fallen to $4.50 per share and investor chooses to close the position by purchasing the CFDs

When the position is closed, the gross profit made by Client B can be calculated as follows:

4^th December sold 2,000 CFDs at $5.00 per share

15^th December purchased 2,000 CFDs at $4.50 per share

Gross profit on transaction = 50c per share x 2,000 CFDs = $1,000

The above examples obviously have shown positive trades where a profit was realised in both. Please take into consideration that any profitable trades could quite have easily been loss making and please conduct proper research before entering into any CFD position.