To calculate the profit or loss of an online CFD trading operation, you must therefore multiply the position size (total number of contracts) by the value of each contract (expressed per movement point, or pips). You will then have to multiply this figure by the difference in points between the price at the opening of the contract and the price at its close:
(CFD NUMBER X POINT VALUE / PIP) X (CLOSING PRICE – OPENING PRICE)
For example, if you buy a lot of 100,000 EUR / USD units (for which 1 pip is worth $ 10), at 1.1000 and close the position at 1.1050, you will have cashed a gain of 50 pips, i.e. a profit of:
50 PIPS X 10 DOLLAR (PER PIP) = 500 DOLLARS
Worth Noting Parts
Note that with a leverage of 100, the margin used to buy the lot of 100,000 units mentioned above would have been 100,000 / 100, or 1000 Dollars.
Compared to this margin used, the gain of 500 dollars calculated above corresponds to a performance of more than 50%, to be compared with the variation of 0.45% represented by the rise of the EUR / USD from 1.1000 to 1.1050. This is why we say that leverage has a multiplier effect of gains (and losses). Go for the Global CTB options there.
Online stock trading with leverage: example
In order to summarize the different concepts and calculations seen so far in this guide to becoming a trader, we offer below two complete examples of online trading operations on CFDs.
In this example, we will decide to go buy when the Tesla share is worth $ 1200. You believe, like many analysts, that the company’s stock price will rise. So you decide to buy 10 shares. 10 Tesla shares at $ 1,200 represent exposure of $ 12,000. However, thanks to the leverage offered by CFDs, you do not need to have all of this sum in your account. With a leverage of 20, you will only mobilize:
- (10 SHARES X $ 1200) / 20 = $ 600
To complete this scenario, let’s say your target is $ 1,500, and you will abandon the trade and take your losses if the stock drops below $ 1,100.