See how CFD trading works in practice, with step-by-step examples on both long and short positions.

When you buy or sell a contract for difference (CFD), you are agreeing to exchange the difference in the price of a market, from when you open your position to when you close it. At first glance, that can seem more confusing than a traditional trade – so here are some examples to guide you through opening and closing positions on BHP and the Australia 200 index.

BHP has a sell price of \$27.59, and a buy price of \$27.60.

BHP’s next earnings announcement is fast approaching, and you expect it to be good news. You think the company’s share price will go up, so you buy 2000 share CFDs at \$27.60. This is the equivalent of buying 2000 BHP shares.

Because CFD trading is a leveraged product, you don’t need to put up the full value of these shares. Instead, you only need to cover the margin, which is calculated by multiplying your exposure with the margin factor for the market you are trading.

So if BHP has a margin factor of 5%, then your margin would be 5% of the total exposure of your trade (2000 share CFDs x \$27.6 = \$55,200), or \$2,760.

### If your prediction is correct

When BHP announces its results, it’s clear the company has had a successful quarter – and as you predicted, its share price climbs. You decide to close your position when it reaches \$29.60, with a buy price of \$29.61 and a sell price of \$29.60

You reverse your trade to close a position, so you sell your 2000 CFDs at a price of \$29.60.

To calculate your profit, you multiply the difference between the closing price and the opening price of your position by its size. \$29.60 – \$27.60 = \$2, which you multiply by 2000 CFDs to get a profit of \$4,000.

Just remember that you’ll also need to pay a commission fee and any overnight funding charges. Please refer to your tax adviser for tax matters.

### If your prediction is wrong

BHP’s results are worse than expected, and its share price immediately falls. You decide to cut your losses and sell your 2000 CFDs at \$26.60.

Your position has moved \$1 against you, meaning you make a loss of \$2000 (in addition to your commission fee, and any overnight charges).

 Example CFD trade Sell / buy price \$27.59 / \$27.60 Deal Buy at 27.60 Deal size 2000 share CFDs Margin \$2,760 Commission \$55.20 (2000 X 27.60 = \$55,200 X 0.1% = \$55.20) Closing price Sell at 29.60 Sell at 26.60 Calculation 29.60 – 27.60 = 2 2000 share CFDs * 2 = \$4000 \$4,000 - \$55.20 commission = \$3944.8 26.60 – 27.60 = -1 2000 share CFDs * -1 = -\$2000 -\$2,000 – \$55.20 = -\$2055.2 Profit / loss \$3944.8 profit \$2055.2 loss

## Selling the Australia 200

Our Australia 200 price is 5400.0 to sell or 5401.0 to buy.

You anticipate that an upcoming interest rate announcement from the RBA will negatively impact the index, so you decide to sell five contracts (the equivalent of \$125) at 5400.0.

The Australia 200 has a margin factor of 0.5%, so you need to deposit ((\$125 x 5400) x 0.5%) \$3375 as margin.

### If your prediction is correct

The announcement is a disappointing one, and the Australia drops with a buy price of 5354.0 and a sell price of 5353.0. You’re ready to secure your profit, so you buy five contracts at 5354.0.

Because this is a short position, you minus the closing price (5354.0) from the opening price (5400.0) of your position to calculate profit, before multiplying by its size (5 contracts x \$25 per contract = \$125).

5400 - 5354 = 46 points, which you multiply by \$125 to give you a profit of \$5750. You don’t need to pay commission on indices CFD trades, as our costs are included in the spread – but you will still have to pay any overnight funding charges and may be subject to tax consideration.

### If your prediction is wrong

The announcement proves positive, and it gives the index a boost. You decide to cut your losses when the buy price hits 5430.0.

The price has moved 30 points against you. This gives you a loss of \$3750, as well as any overnight funding charges.

### Selling Australia 200: example trade

 Example CFD trade Sell / buy price 5400.0 / 5401.0 Deal Sell at 5400.0 Deal size 5 contracts (at \$25/contract) Margin \$3375 Commission \$0 Other potential charges Overnight funding charge if your position is open over more than a single trading day. You may be liable on tax. Closing price Buy at 5354.0 Buy at 5430.0 Calculation 5400 – 5354 = 46 125 * 46 = \$5750 5400 - 5430 = -30 125 * -30 = -\$3750 Profit / loss \$5750 profit \$3750 loss

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