Published on: 2025-08-14
Updated on: 2026-07-10
A CFD, or contract for difference, is an agreement to exchange the difference in an asset’s price between the moment you open a trade and the moment you close it. You never own the asset. You profit if the price moves in your favour and lose if it moves against you. The size of that profit or loss depends on three numbers: how far the price moved, how large your position was, and how much leverage you used.
This page shows the exact calculation, step by step, with worked examples for gold, a share, and a currency pair. Each example shows the money made or lost after costs, so you can see how the math works before you ever place a trade.
CFD profit or loss is determined by price movement, contract size, the number of lots traded and whether the position is long or short.
Leverage magnifies both gains and losses. A price move of about 1% on the underlying asset can become a 20% or larger change on the margin you deposited.
Spread and overnight financing reduce your net result. A calculation that ignores them overstates profit.
Regulator data shows most retail CFD accounts lose money. The reported figures range from 68% to 89% depending on the market and year.
A contract for difference lets you trade on the price movement of an asset without buying the asset itself. When you open a CFD, you agree with the broker to settle the difference between the opening and closing price in cash.
You can trade in two directions. Going long means you buy first, expecting the price to rise. Going short means you sell first, expecting the price to fall. Because you settle only the price difference, you can trade instruments such as gold, oil, share indices, individual shares, and currency pairs from a single account.
CFDs are leveraged products. You put down a fraction of the full trade value, called margin, and the broker covers the rest for the duration of the trade. This is what makes both the return and the risk larger than the price move alone would suggest.
While these mechanics form the foundation of CFD trading, understanding how the CFD market works provides more context on how these contracts are priced and traded.
The profit or loss on a CFD comes from the price movement multiplied by the size of your position. Position size is set by two things: the contract size (how many units make up one lot) and the number of lots you trade.
For a long (buy) position:
Profit or Loss = (Closing Price − Opening Price) × Contract Size × Number of Lots
For a short (sell) position, the price terms swap:
Profit or Loss = (Opening Price − Closing Price) × Contract Size × Number of Lots
Contract size varies by instrument. One standard lot of a major currency pair is 100,000 units of the base currency. One lot of gold is 100 troy ounces. For share CFDs, the contract size is usually 1, so the number of lots equals the number of shares.
Two further steps complete the real result:
Margin required = Notional Value ÷ Leverage. Notional value is the full trade size (contract size × lots × price). This is the cash you must have in your account to open the trade.
Net result = Gross profit or loss − spread cost − any overnight financing. These costs are explained further below.
Gold is quoted per troy ounce. One lot of gold (XAUUSD) is 100 ounces. Suppose you trade 0.1 lot, which is 10 ounces. All prices here are illustrative.
Opening price: $4,100.00 per ounce
Notional value: $4,100 × 100 × 0.1 = $41,000
Leverage: 20:1. Margin required: $41,000 ÷ 20 = $2,050
Closing price: $4,150.00 per ounce
Gross profit = ($4,150 − $4,100) × 100 × 0.1 = $500
Now subtract the cost of the spread. If the spread is $0.30 per ounce:
Spread cost = $0.30 × 100 × 0.1 = $3
Net profit is about $497, before any overnight financing.
Look at the two percentages side by side. The gold price rose by $50, which is 1.22% of $4,100. But your return on the $2,050 margin was $500, which is 24.4%. That gap is leverage at work.
Now take the same position, but the price moves against you.
Opening price: $4,100.00 per ounce, 0.1 lot, 20:1 leverage, $2,050 margin
Closing price: $4,050.00 per ounce
Gross loss = ($4,050 − $4,100) × 100 × 0.1 = −$500
Add the $3 spread cost, and the net loss is about −$503.
The math is the mirror image of the winning trade. The price fell 1.22%, but you lost 24.4% of your margin. Leverage does not choose a direction. It multiplies whatever the market does. For how firms limit downside on regulated retail accounts, see negative balance protection for CFDs.
Short selling lets you aim to profit from a falling price. For share CFDs, the contract size is 1, so one lot equals one share.
Action: sell (short) 100 share CFDs at $250.00
Notional value: $250 × 1 × 100 = $25,000
Leverage: 5:1. Margin required: $25,000 ÷ 5 = $5,000
Closing price: buy back at $240.00
Gross profit = ($250 − $240) × 1 × 100 = $1,000
Return on the $5,000 margin is 20%. Had the share risen to $260 instead, the same math would produce a $1,000 loss. Learn more about trading shares this way on our Share CFDs page.
Currency CFDs use a contract size of 100,000 for one standard lot.
Action: buy 1 lot of EURUSD at 1.0800
Notional value: 100,000 × 1.0800 = $108,000
Leverage: 30:1. Margin required: about $3,600
Closing price: 1.0850
One pip on a standard lot equals $10. The price rose by 50 pips, so the gross profit is $500. Subtract a 1-pip spread ($10), and the net profit is about $490. Return on the $3,600 margin is about 13.6%.
Leverage is the ratio between your position’s full value and the margin you post. At 20:1, $2,050 of margin controls $41,000 of gold. Your profit and loss are calculated on the full $41,000, not on the $2,050.
This is why the return-on-margin percentage is always much larger than the underlying price move. It is also why a position can lose a large share of its margin in response to a small adverse move. Higher leverage means a smaller price move is needed to wipe out the margin.
Regulators set maximum leverage for retail clients to limit this effect. In the European Union and the United Kingdom, the caps are 30:1 for major currency pairs, 20:1 for gold and major indices, 5:1 for individual shares, and 2:1 for cryptocurrencies, based on measures introduced by the European Securities and Markets Authority (ESMA) on 1 August 2018.
Brokers in other regions may offer higher maximum leverage. EBC, for example, offers leverage up to 500:1 where permitted, which differs from the ESMA and FCA retail caps. Higher leverage increases both the potential return and the potential loss. For a fuller treatment, read what leverage trading is.
Three costs commonly separate the gross calculation from the money that reaches your account.
| Cost | What It Is | How It Is Charged |
|---|---|---|
| Spread | The difference between the buy (ask) and sell (bid) price. | Paid when the trade is opened. Cost is typically calculated as spread × contract size × number of lots. |
| Overnight Financing (Swap) | A daily charge or credit for holding a leveraged position past the broker's rollover time. | Debited or credited for each night the position remains open. Many brokers apply a triple charge on one day of the week to account for weekend financing. |
| Commission | A fee charged on certain instruments or account types, such as share CFDs. | Charged as either a fixed amount per trade or a percentage of the trade value, depending on the broker and instrument. |
A worked example that leaves out the spread and swap will always overstate profit. Include them to see the real net figure.
CFD trading carries a high level of risk, but losses are not inevitable. Many traders reduce risk by focusing on preparation rather than trying to predict every market move.
Some practical ways to manage risk include:
Use stop-loss orders to limit potential losses if the market moves against your position.
Trade with sensible position sizes so that a single losing trade does not have a significant impact on your account.
Be cautious with leverage, as higher leverage increases both potential profits and potential losses.
Understand all trading costs, including spreads, commissions and overnight funding, as these affect your breakeven point.
Develop and follow a trading plan with clear entry, exit, and risk-management rules instead of making emotional decisions.
Regulators around the world require CFD providers to disclose that most retail accounts lose money. While no strategy can eliminate risk, disciplined risk management and a solid understanding of how CFDs work can help traders avoid common mistakes that lead to losses.
Multiply the price change by the contract size and the number of lots. For a buy trade, use (closing price − opening price). For a sell trade, use (opening price − closing price). Then subtract the spread and any overnight financing to get the net result.
Buy 0.1 lot of gold at $4,100 per ounce. One lot is 100 ounces, so 0.1 lot is 10 ounces. If gold rises to $4,150, the gross profit is ($4,150 − $4,100) × 100 × 0.1 = $500, before costs.
Leverage sets how much margin you post relative to the trade’s full value. Your profit or loss is calculated on the full value, so a small price move becomes a much larger percentage change on your margin, in both directions.
Leverage magnifies losses; costs such as spreads and overnight financing reduce returns; and prices can move quickly against a position. Regulator data shows most retail accounts lose money over time.
Reported figures range from 68% (ASIC, Australia, 2024 financial year) to 89% (ESMA, European Union, 2018), depending on the market and period.
CFD profit and loss is not complicated once the formula is clear: price change, times contract size, times the number of lots, minus costs. The part that surprises new traders is leverage. It turns a 1% move in gold into a 24% swing on the margin deposited, and it does so whether the trade wins or loses. Reading the calculation before you trade is the difference between knowing your risk and discovering it after the fact. To delve deeper into the mechanics of these trades, start with the pillar guide to CFD trading, which covers its costs and risks.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
