Let’s say you want to trade using a $5,000 deposit (or the equivalent in GBP) in gold CFDs, a popular commodity, using leverage. For gold, the maximum leverage permitted is 20:1. This means that you can now open trades with a face value of up to $100,000. Why? Because…
5,000 (deposit) x 20 (leverage) = 100,000 (face value, or trading power).
For the sake of this example, let’s say a single CFD on gold is worth $1,000. You believe the price will increase and so decide to open a Buy deal on gold, buying 100 CFDs.
100 x 1,000 = $100,000
A few hours later, you go to your trading account and see that you were correct: the price of gold CFDs has risen to $1,020.
Well, that’s great news for you because your 100 gold CFDs are now worth $102,000. Why? Because…
100 x 1,020 = $102,000
You decide it’s time to close your gold deal.
Your total pretend profit from this pretend deal is:
102,000 – 100,000 = $2,000, or a $2,000 profit on a $5,000 deposit.
Similarly if gold price falls from $1,000 to $980, your pretend loss on the same pretend deal will be $2000.
The same logic of calculation works for all of our CFD instruments – and for losing deals.
* In this example, we disregarded potential rollover, overnight financing and the spread.
* For the exact leverage rates offered by iFOREX, visit our Trading Conditions page.