Trading Knowledge

Expand the knowledge of trading, improve the level of trade, let you trade confidently, in the series of educational articles provided by Pacific Union.

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Profit and Loss Calculations
The Profit or Loss for a CFD can be calculated using a very simple formula;

P/L = (Sell Price* – Buy Price*) x No. of CFDs
*Without decimal point

It doesn’t matter if you bought or sold first, the profit on a CFD is the difference between the buying and selling price. It’s just that simple!

You will find plenty of examples of P/L calculations in the remainder of this document.

Make profit from a falling market
With CFDs you can benefit whether the price of an instrument is falling or rising. As we mentioned earlier there is no restriction on opening a position with a buy or a sell in CFD trading.

Entering a position with a buy sell, which you would do if you thought the market was falling, is called short selling and allows you to sell a position first and then buy it back at a lower price.

An example using our simple P/L formula follows;

You sell 10 CFDs @ 60.30 [because you think the market is falling]
…and it does, so, to close your trade…
You buy 10 CFDs @ 58.85

Therefore your P/L would be…
P/L = (6030-5885) x 10
= 145 x 10
= $1450

Trade on a wide range of markets
With CFDs you are not limited to a specific asset class; you can trade all your favourites with CFDs. With Pacific Union you can trade CFDs on:

  • Commodities
  • Indices
  • Shares

No Stamp Duty
Whenever you buy a share, you have to pay the government 0.5% of the value of your trade. Well not with CFDs; unlike other investments there is no stamp duty to pay on a CFD trade.

Margin flexibility
CFDs are traded on what we call margin. This means that you can take a large position in the market without having to deposit the full contract value.

For example, Pacific Union offers a leverage of 500:1 on FX meaning that you could leverage a $2,000 deposit to trade $1 million!

We will come on to some worked examples of margin and leveraging later on in our training.

But for the moment all you really need to know is that leverage is a really efficient use of your capital and leaves your equity free to trade in various other transactions.

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