Profits and losses on CFDs
There is some confusion about profit and loss regarding CFD trading. In this article however, I will discuss how your yield is calculated and what factors play an important role in this. To explain this properly we have used the trading software of Plus500 as an example in this article. By the way, read the article about leverage first to make sure that you understand how this works.
Your balance will be made up of some separate parts at most online brokers. First, there is the available balance. The available balance is the part of your capital still available to trade with. The available balance is the actual money available for trading; this amount is not yet leveraged.
The final part of the balance is the profit and / or loss (P & L). The profits or losses are calculated by adding the results of the different positions. The result of a position is determined by looking at the difference between the opening price and the current price. Only when the position is closed, the gain or loss is permanently added to or deducted from your equity.
The second part of your balance is Equity. Equity consists of the available balance in your account plus or minus the value of the open positions. When the open positions are having a positive result, equity will be higher than the available balance; when the open positions are having a negative result, the equity will be lower.
With a leverage account you should take into account the so-called margin. There is always an initial margin and in some cases there is also a maintenance margin. If there is no maintenance margin the initial margin will be decisive to close or liquidate your position.
The initial margin is determined by the leverage. If the leverage is one to fifty, the margin required for buying or selling a CFD will be 1/50 of the value of the instrument. The maintenance margin is a percentage of the value of the instrument that should be present on your account in order to keep the open position. If the balance is insufficient, a margin call will result in the automatic closing of the position.