Below is an example to illustrate trading using Commodity CFDs.
Long Position in US Crude - Buy 100 barrels of US Crude CFDs.
Day 1 – the trader is bullish and therefore wants to be long US Crude CFDs.
|
|
| Trade |
Buy 100 CFDs at $59.90 |
| Nominal value |
$5990 |
Margin required (5% margin for first €300k
collateral on account, otherwise 10%) |
$299.50 |
Day 5 – the price has risen and the trader wishes to close their position for a profit.
|
|
| Trade |
Sell 100 CFDs at $61.50 |
| Value of closing trade |
$6150 |
| Profit |
$160 |
| Movement in the underlying commodity |
($61.50 - $59.90) / $59.90 = 2.7% |
In summary the trader took advantage of the leverage that comes with Commodity CFDs. The opening trade was valued at $5990 but the trader had to only provide a margin of 5% or $299.50. The closing trade generated a profit of $1.60 per barrel and whilst that translated to a 2.7% rise in the price of oil, the client realised a profit of $160.
Clients should be reminded that while trading leverage products like Commodity CFD can bring increased profitability, they can also increase a trade’s potential loss should the market move against you.