CFD Trading
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CFD FAQs
How do CFDs work?
CFDs work using contracts that track the live prices of financial markets. When you trade one of these contracts, you’ll exchange the difference in the market’s price from when you open your position to when you close it. You can buy CFDs to open a long position or sell them to go short.
For example, say you buy a US SP 500 CFD when the index is at 5,000, then sell it at 5,100. You’ll exchange the difference between 5,000 and 5,100, pocketing 100 points as profit. If the index falls to 4,900 instead, though, you’d lose 100 points.
Your total profit or loss is dictated by the number of contracts you buy or sell.
How do you calculate CFD profits?
To calculate CFD profits, you multiply the number of CFDs you have traded by the point value of each CFD – and multiply that figure by the number of points the underlying market has moved from when you opened your trade to when you close it.
If the underlying market has moved in your chosen direction, you earn that figure as profit. If not, you make a loss.
That might sound complicated, but it becomes much simpler in an example.
Buying a single US SP 500 CFD will earn you $1 for every point the index rises and lose you $1 for every point it falls, meaning a US SP 500 CFD has a point value of $1. Buy 10 US SP 500 CFDs, and you’ll make $10 for every point the index rises—but lose $10 for each point it falls.
If the index moves from 5,000 to 5,100, it has moved 100 points. If you’ve bought CFDs, you profit if the index rises, meaning your 10 CFDs would generate a profit of (100 points × $10 point value) $1,000.
If you had sold 10 CFDs instead, you would incur a loss of $1,000 for the same move.
Of course, you’ll need to minus any overnight financing fees to get the net outcome from your trade.
Do day traders trade CFDs?
Yes. The leverage and range of markets available with CFDs make them a popular option among day traders:
Leverage magnifies profits and losses, which can be useful when trading relatively small price movements
The range of markets helps day traders save time, accessing thousands of trading opportunities from a single login