Calculations of profit or loss for CFD trades will vary depending on the transactions you open. They will be different for long and short positions. Let’s see how to estimate your profit.
Key Takeaways🔑
| →Profit/loss for CFD trades is calculated differently for long and short positions. |
| →Accurate predictions on market movements are essential for successful CFD trading. |
| →CFD trading involves significant risks and it’s crucial to understand the calculation and potential outcomes. |
Contents
Calculations of the profit for long positions
You open a position called a long one every time you predict the price of the particular asset will increase.
The formula to calculate profit for long trades is equal to the difference between (closing price minus opening price) / opening price x multiplier x amount and the fees.
Let’s look at the example below.
The opening price of the trade was 75.401 and the closing price 75.596. The invested amount was 100 and a chosen multiplier x100. The trading fee was in the amount of 5,21.
CALCULATION:
(75,596−75,401)÷75,401×100×100−5,21 = 20,65
The trade brought a profit of 20.65.
Calculations of the profit/loss for short positions
You open a position called a short one whenever your market analysis assumes the price of a chosen asset will fall.
The formula to calculate profit for short positions is equal to the difference between (opening price minus closing price) / opening price x multiplier x amount and the fees.
In the example above the invested amount in the trade was 100, a multiplier is chosen x20 and there were two different fees taken. The trading fee in the amount of 4.59, and the overnight commission in the amount of 0.78. The opening price was 192.12 and the closing price 194.14.
The calculations will look like this:
(192,12−194,14)÷192,12×20×100−4,59−0,78 = -26,40
This time the trade has ended up in a loss of 26.40 so it wasn’t a successful prediction for the Facebook stock price.
This is how the profit or loss in CFD trading is calculated on the Olymp Trade platform. If you are interested in trading CFDs, I encourage you to read our guide on trading CFDs.
Good luck!
Pros and Cons of CFD Trading👍👎
Pros:
- 📈 Potential for High Returns: When market predictions are accurate, CFD trading can yield substantial gains.
- 🌐 Access to Global Markets: CFDs provide exposure to a wide array of markets worldwide.
- 🔄 Flexibility: CFD trading allows for long and short positions, enabling traders to profit from both rising and falling markets.
Cons:
- 📉 Risk of Significant Losses: If market predictions are incorrect, losses can be considerable.
- 💰 Margin Calls: CFD trading often involves leverage, which could lead to margin calls if the market moves against the trader’s position.
- ⏰ Time-Consuming: To trade successfully, continuous market monitoring and analysis are necessary.
| Trading Aspect | Impact on CFD Trading |
|---|---|
| Market Predictions | Critical in determining success or failure in CFD trading |
| Trading Fees | Can affect profitability; should be considered when calculating potential profit/loss |
| Leverage | Can significantly magnify profits or losses, requiring careful risk management |
Q&A on CFD Trading🎯
- Q: What is a long position in CFD trading?
- A: A long position in CFD trading involves buying an asset with the expectation that its price will rise.
- Q: What is a short position in CFD trading?
- A: A short position in CFD trading involves selling an asset with the expectation that its price will fall.
- Q: What is leverage in CFD trading?
- A: Leverage is a tool in CFD trading that allows you to trade with more money than you have in your account. It can magnify both potential profits and losses.
- Q: What are trading fees?
- A: Trading fees are costs that a broker charges for their services. They are an important factor in determining the profitability of trades.
- Q: How can I manage the risks of CFD trading?
- A: Risk management strategies in CFD trading include setting stop-loss orders, limiting leverage, diversifying your portfolio, and maintaining a disciplined trading strategy.