How to calculate profit in CFD trading?
Trading
This process is very simple. You choose the asset you are interested in and place an order. For example you think that VK stocks' asset price will grow. In this case you open a trading position.
Subsequently, in case you are sure in asset price's falling, open a selling position.
If price changes in your predicted direction, your profit will be equal to an asset price variance when opening and closing a transaction.
Level of leverage
The reason of widespread appreciation of this instrument lies in opportunity of level leverage trading. Use of this tool gives a trader an opportunity to open more serious transactions than his own capital let him.
A trader's own capital includes margin (provided for broker's terms equity contribution granting validity of concluded transaction).
To realize a transaction independently of prices' fluctuations, broker requires a guarantee exceeding necessary for a definite position sum of money. It is called margin. It gives an opportunity to provide your opened positions with capital granting trading in case of a price value on your chosen asset.
Calculation
The profit is calculated depending on which position you open. In case you are going to buy an asset supposing it will grow in value, your position is called long. For long positions a profit is calculated according to the formula (closing price / opening price -1) * leverage * investment. For example, Mike invested $1000 in buying stocks of Company 1 at the opening price of $12. He applied the leverage of x5. When Mike closed the position, the stock cost $15. Next calculate his profit from the transactions. Mike made a profit of $1250.
When you are going to sell an asset that you don’t own expecting that you will decrease in value, your position is called short. For this position it is calculated according to the formula ((1- closing price) / opening price) * leverage * investment. Take a look at the next example. Paul used $5000 to sell stocks of Company 1. The price of stocks in that position was opened with $13. When Paul closed the position, the price was $11. Paul traded with the leverage of x3. Following the calculations Paul's profit resulted in $2250.
- Profit is broadly defined as a difference between got financial gains and incurred costs.
- CFD is a contract for difference on a definite asset, off-exchange financial derivate. It gives traders an opportunity to profit on asset price's fluctuations when opening and closing positions. It does not matter, whether an asset goes up or down, you profit from correctly planned transaction.
Trading with this instrument, you buy and sell nothing. You just conclude a contract specifying price variance on your chosen asset when opening and closing a deal.
We wish you successful trading.
