Contracts for difference

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8. Example of a long and short trade

Below is a calculator which illustrates the workings of a simple long and short CFD trade.

Spend 10 minutes changing some of the key figures, especially the closing price and the length of time the contract is held open, and you will see how the bottom line profit/loss figure changes.

Note that the calculator does not take account of variation margin. If your position deteriorates day-by-day, your broker will require you to post extra margin to your account to cover the losses.

A CFD trade Broker's charges Initial margin    % Usually 20% Commission    % Usually 0.25% Buy transaction Date (In format mm/dd/yyyy)      E.g. 15th May 2002 is 05/15/2002 Share price    p Number shares      Contract value £    Initial margin £    Sell transaction Date (In format mm/dd/yyyy)      E.g. 15th May 2002 is 05/15/2002 Share price    p Contract value £    PROFIT & LOSS Gross profit £    Commissions Buy side £    Sell side £    Total commission - £    Interest received Number of days      1 month LIBOR    % Premium/Discount on LIBOR (If discount put a minus sign in front of the figure, eg -2.5)    % Interest rate    % Total interest received/deducted £    Net profit £    Profit as a % of capital    %

1. What are CFDs? 2. The benefits of CFDs 3. Initial margin 4. Variation margin 5. Commission costs 6. Interest payments 7. Dividends 8. Example of a long and short trade 9. Comparison of CFDs to share investing 10. Comparison of CFD trading to spread betting 11. Types of order 12. Stop losses 13. Strategies: Pairs trading 14. Strategies: Hedging an equity portfolio 15. Opening an account with a broker 16. Conclusion

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