When you're starting out with CFD trading, the calculations can seem overwhelming. Here, we’ll begin by breaking down two key calculations: how to work out your margin and your profit and loss (P&L). It's also essential to understand how to calculate commission and holding costs. Let’s go through some practical examples, step by step, to help make these concepts clearer.
Indices
You expect the Nasdaq 100 to rise, so you buy $10,000 worth of Nasdaq 100 Index CFDs when the index is trading at 15,000 points. The margin requirement is 5%, meaning you only need to deposit $500 to control this position.
Position size: $10,000
Margin required: $10,000 x 5% = $500
Scenario: The Nasdaq 100 rises by 3%, bringing the index to 15,450 points. You decide to close your position to lock in your gain.
Profit calculation: $10,000 x 3% = $300
P&L: +$300 (You made a $300 profit after closing your position, with only a $500 margin.)
Had the Nasdaq dropped 3% and you closed the position, you would have lost $300 instead.
Shares
You think Tesla’s stock will rise after their earnings call, so you decide to buy 100 Tesla share CFDs at $250 per share. The total position size is $25,000, and the margin requirement is 20%.
Position size: 100 shares x $250 = $25,000
Margin required: $25,000 x 20% = $5,000
Scenario: Tesla’s earnings call brings bad news, and the stock price drops by 10%, down to $225 per share. You decide to close the position to limit further losses.
Loss calculation: 100 shares x $25 price drop = $2,500 loss
P&L: -$2,500 (You’ve lost $2,500 after closing your position, leaving $2,500 of your initial margin.)
If Tesla’s stock had risen 10%, you would have made $2,500 instead.
Forex
You predict that the USD will strengthen against the JPY and decide to open a $20,000 position at an exchange rate of 110.00. The margin requirement is 3.34%, so you only need $668 as a deposit.
Position size: $20,000
Margin required: $20,000 x 3.34% = $668
Scenario: The USD strengthens, and the exchange rate moves from 110.00 to 111.10, a 1% gain. You decide to close your position to secure the profit.
Profit calculation: $20,000 x 1% = $200
P&L: +$200 (You’ve made a $200 profit after closing your position with a $668 margin.)
If the exchange rate had moved against you by 1%, you would have lost $200.
Commodities
You believe the price of gold will rise and decide to buy $15,000 worth of gold CFDs when the price is $1,800 per ounce. The margin requirement for gold is 5%, so you need $750 to open the position.
Position size: $15,000
Margin required: $15,000 x 5% = $750
Scenario: Instead of rising, the price of gold falls by 3%, dropping to $1,746 per ounce. You decide to close your position to prevent further loss.
Loss calculation: $15,000 x 3% = $450
P&L: -$450 (You’ve lost $450 after closing your position, leaving $300 of your initial margin.)
Had gold risen by 3%, you would have made $450 instead.
Important note:
In the above examples, you’ve closed your positions, realising gains or losses. However, in many cases, after your position gains or loses value, you still have the option to hold it open, subject to margin close-out requirements. This can give you flexibility, but it also increases the risk if the market moves further against you. Always monitor your margin levels to avoid forced liquidation of your position.
Commission
CFD share trades attract a commission charge for each trade. For Australian shares, the commission is $7 or 0.09% of the trade size, whichever is greater.
To calculate your commission, multiply the size of your position by the applicable commission rate.
Example: You decide to buy 500 BHP Group CFDs at a price of $47.50 per share. The commission to open the position would be:
500 shares x $47.50 x 0.09% = $21.38 (since this is greater than the $7 minimum)
If you then close your position when BHP’s share price rises to $48.20, the commission would be:
500 shares x $48.20 x 0.09% = $21.69
Total commission paid for both opening and closing the trade would be $43.07.
Holding costs
If you hold any position after 17:00 New York time, you will be charged a holding cost, or if the position has a fixed expiry the cost is built into the price of the product.
We calculate the holding rate applicable to the holding cost based on the interbank rate of the currency in which the product is denominated. For example, the Australia 200 is based on the Banker Acceptance Bill 1 month rate. For buy positions, we charge 2.5% above this rate. For sell positions you receive this rate less 2.5%, unless the underlying interbank rate is equal to or less than 2.5%, in which case sell positions may incur a holding cost.
You can view your historic holding costs by clicking on the account menu and then the history tab.
Example: If the interbank rate for the Australia 200 is 3%, and you have a long position, your holding cost would be:
3% + 2.5% = 5.5% per year (adjusted for the time held)
You can calculate your holding costs for each day you hold the position.
Key takeaways for CFD traders
Any CFD trader should be able to calculate their profit and loss, margin requirements, and additional costs such as commission rates and overnight holding charges. Regardless of the type of underlying security, understanding how to calculate these will allow you to manage your risk accordingly. You’ll also have a greater sense of confidence when approaching the markets.
To learn more about trading CFDs, see our other CFD trading guides. You can also try CFD trading and practice your trading skills by opening a demo account.