Examples of trading in contracts for difference (CFD)
Mini Dow Jones
An investor bought 1 contract for mini Dow Jones difference at the price
of 10,401 and sold it at the price of 10,720 points. The price difference
between opening and closing is 319 points. So, the profit is 5 dollars x 319 =
1595 dollars.
Wheat
You bought 1 CFD contract for wheat at the price of 3.20 ј dollars per bushel
and sold it at the price of 3.22 Ѕ dollars. The difference is 2 ј cents. One CFD
contains 5,000 bushels (like a standard stock exchange contract, for example,
on the Chicago Board of Trade (CBOT). So, your profit is 5 000×2 ¼ cents =
112,50 dollars.
Long position (purchase)
An investor decides to buy December wheat quoted 315 (bid)/316 (offer), and
buys 5 contracts at the price of 316 cents per bushel (let’s recall: 1 contract
contains 5,000 bushels of wheat — see specifications).
Buy price of December wheat is 316 cents
Quantity of contracts is 5
Value of 5 wheat contracts is 79,000 (3.16*5*5,000)
Commission is 30 US dollars (6 US dollars per contract party)
Collateral required is 2,500 US dollars
Investor freezes only 2,500 dollars on the account in order to get control
over wheat consignment valued 79,000
Position closing
Five days later wheat is quoted 325/326 cents per bushel, and the investor
decides to close this position by selling an identical set of contracts, namely
5 December contracts. The investor sells those at the «bid» price, i.e.
325 cents.
Sell price for December wheat is 325 cents
Quantity of contracts is 5
Wheat value is 81,250 US dollars (3.25*5*5,000)
Commission is 30 US dollars
Trade profit per the transaction is 2,250 US dollars
Net profit (less commission) is 2,190 US dollars
The profit is 90% of the capital initially deposited
Short position (sale)
Based on their analysis of the situation, the investor thinks the price for
wheat is going to get down and decides to derive profit from that by selling
December wheat quoted 333 (bid)/334 (offer). They sell 5 contracts at the price
of 333 cents per bushel (let’s recall: 1 contract contains 5,000 bushels
of wheat — see specifications).
Sell price for December wheat is 333 cents
Quantity of contracts is 5
Wheat value is 83,250 US dollars (3,33*5*5,000)
Commission is 30 US dollars (6 dollars per contract party)
Collateral required is 2,500 US dollars (500 dollars per each contract)
The investor freezes only 2,500 dollars on the account in order to gain
control over wheat consignment valued 83,250 US dollars
Position closing
Two days later wheat is quoted 322/323 cents per bushel, and the investor
decides to close this position by buying an identical set of contracts, namely 5
December contracts. The investor buys those at the «offer» price, i.e. 323 cents.
Buy price for December wheat is 323 cents
Quantity of contracts is 6
Wheat value is 80,750 US dollars (3.23*5*5,000)
Commission is 30 US dollars
Trade profit per the transaction is 2,500 US dollars
Net profit (less commission) is 2,440 US dollars
The profit is a bit lower than 100% than the capital initially deposited
Please note: If in the above examples the price went in the opposite
direction, the investor would have sustained a loss instead
of gaining profit.
