Unravel the mystery of calculating profits in Contract for Difference (CFD) trading on eToro. With a clear understanding of long and short orders, you’ll be prepared to make informed trading decisions. Ready? Let’s dive in!
Key Takeaways
→There are two positions in CFD trading: long and short orders. |
→Long orders anticipate an asset price increase, while short orders expect a decrease. |
→Different formulas calculate profits for long and short orders, accounting for leverage. |
→Practicing these calculations in a demo account can enhance your trading skills. |
Table of content
- 📈 Understanding Long and Short Orders in CFD Trading
- 📚 Calculating Profit for Long Orders
- 😇 The Holy Grail of Formulas
- 🧪 Example: Long Order Profit Calculation
- 📉 Calculating Profit for Short Orders
- 🤓 Flipping the Script
- 🧪 Example: Short Order Profit Calculation
- 🔄 Calculating Losses in CFD Trading
- 💡 Pros and Cons of CFD Trading on eToro
- 🎮 Practice Makes Perfect: eToro Demo Account
- eToro CFD Trading: • Learn more about eToro CFD Trading📝
- CFD Basics:
- CFD Trading Strategies:
- Advanced CFD Topics:
- CFD & Options Trading:
- More on CFD Trading:
- GENERAL RISK WARNING
- Author & Expert Trader - Financial Analyst :
📈 Understanding Long and Short Orders in CFD Trading
There are two primary positions in CFD trading: long and short. If you anticipate an asset’s price to increase, you’ll place a long order, also known as “buy” or “going long.” Conversely, if you expect a downward market movement, you’ll place a short order, referred to as “sell,” “shorting,” or “going short.”
📚 Calculating Profit for Long Orders
😇 The Holy Grail of Formulas
When you expect an asset’s price to rise, you’ll place a long order. To calculate profit, use these formulas:
- 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
🧪 Example: Long Order Profit Calculation
Mark invested $1,000 in a company’s stocks, anticipating an upward market movement. He places a long order using x5 leverage. The stock’s value is $12 at the start of the contract and $15 when the position is closed. Applying the formulas:
- Profit Percentage = (($15/$12) – 1) x 100% = 25%
- Profit Amount Without Leverage = 0.25 x $1,000 = $250
- Total Profit = $250 x 5 = $1,250
📉 Calculating Profit for Short Orders
🤓 Flipping the Script
When you expect an asset’s value to drop, you’ll place a short order. The fundamental profit calculation is similar to long orders, with a slight tweak:
- 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
🧪 Example: Short Order Profit Calculation
Mark spots a market downturn and invests $1,000 in an asset, expecting its value to decrease. He places a short order with an x30 leverage. The asset’s value is $15 when the position is opened and $10 when it’s closed. Applying the formulas:
- Profit Percentage = (1 – ($10/$15)) x 100% = 33.33%
- Profit Amount Without Leverage = 0.3333 x $1,000 = $333.33
- Total Profit = $333.33 x 30 = $9,999
🔄 Calculating Losses in CFD Trading
It’s important to remember that the same formulas used for calculating profits also apply to calculating losses. Losses are essentially negative profits and will appear as such when calculated.
💡 Pros and Cons of CFD Trading on eToro
Pros | Cons |
---|---|
✅ Access to a wide range of assets | ❌ Risk of losses due to leverage |
✅ No ownership of underlying asset | ❌ Overnight fees on open positions |
✅ Ability to trade with leverage | ❌ Not suitable for long-term investments |
🎮 Practice Makes Perfect: eToro Demo Account
Now that you’ve learned how to calculate profits (and losses) in CFD trading, put your newfound knowledge into practice using eToro’s demo account. This risk-free environment allows you to sharpen your trading skills and build confidence in your profit calculation abilities before diving into real-world trading.