Calculate Your Profit – CFD Trading On eToro

There are two positions one can take while trading with Contract For Difference (CFD) – long and short. Anticipating the price of an asset to increase in the future would result in a “Long” order, also referred to as “buy” or “going long”. Expecting a downward market movement would result in a “Short” order, also referred to as a “sell” or “shorting” or “going short”.

(NOTE: Before we continue, we have to give a disclaimer that the trading products offered by the companies listed on this website carry a high level of risk and can result in the loss of all your funds. CFDs are complicated instruments that are never guaranteed to provide you supplemental earnings.  In fact, Around 68% of all retail investors experienced a loss while trading CFDs. Make sure to keep this in mind before attempting to use the eToro platform yourself. All the information found on this website is not official trading advice and all practices shown are referenced for the use of the Demo account only.)

How to calculate profit when going long

As mentioned earlier, expecting an upward rise in the asset price would lead to a Long order a.k.a. Buying.

The profit percentage is determined by subtracting 1 from the ratio of closing price to the opening price, converted to a percentage. The amount of profit without any leverage is calculated by multiplying the invested sum with the profit percentage. CFDs are usually traded with leverage, which needs to be multiplied with the profit amount calculated earlier.

Profit Percentage = ((closing price/opening price) – 1 ) x 100%

Profit Amount Without Leverage = Profit Percentage x Investment

Total Profit = Profit Amount Without Leverage x Leverage

Let’s walk through an example. Mark invested $1000 in stocks of a company, he expects an upward market movement, therefore he goes long. He uses an x5 leverage. The stock is valued at $12 at the start of the contract. The stock was $15 when the position was closed.

Using the formulae mentioned earlier,

Profit Percentage = (($15/$12) – 1 ) x 100% = 25% (or 25/100 or 0.25)

Profit Amount Without Leverage = 0.25 x $1000 = $250

Total Profit = $250 x 5 = $1250

How to calculate profit when shorting

Expecting a drop in asset value would lead to short selling. The fundamental profit calculation is the same as with going long. The only difference in this case – we need to account for the closing price being lower than the opening price.

The profit percentage is determined by subtracting the ratio of opening price to closing price from 1, converted to a percentage. The amount of profit without any leverage is calculated by multiplying the invested sum with the profit percentage. CFDs are usually traded with leverage, which needs to be multiplied with the profit amount calculated earlier.

Profit Percentage = (1 – (closing price/opening price) ) x 100%

Profit Amount Without Leverage = Profit Percentage x Investment

Total Profit = Profit Amount Without Leverage x Leverage

On this occasion, Mark spots an opportunity where the market is expected to sink. He chooses to invest $1000 in an asset. The asset was valued at $15 when the position was opened. At the moment of closing, the asset was valued at $10. The trade was executed with an x30 leverage.

Using the formulae mentioned earlier,

Profit Percentage = (1 – ($10/$15) ) x 100% = 33.33% (or 33.33/100 or 0.3333)

Profit Amount Without Leverage = 0.3333 x $1000 = $333.33

Total Profit = $250 x 30 = $9999

It is important to note that losses are also calculated using the same formulae mentioned in this article. Losses are essentially negative profit and would show up as such when calculated.

Now that you’ve learned to calculate profits (and losses) when trading with CFD. Be sure to put that to practice in using the eToro demo practice account. 

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eToro is a multi-asset platform that offers both investing in stocks and crypto assets, as well as trading CFDs.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.

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