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A simple trading example

A simple trading example

Global markets present many opportunities for online investors, and nowadays anyone can invest in shares, commodities, indices, currencies, cryptos and ETFs in the form of CFDs. Taking your first steps as a trader might be a bit challenging, but remember that every successful investor was once a novice, and that with the free education resources and 1-on-1 training at iFOREX, you too can learn how to trade CFDs online. Probably sooner than you imagine.

We want to help you get started. On this page we will provide you with a quick and easy online trading example, for your convenience. Before we do though, we have to introduce a few of basic terms:

Leveraged trading

One of the key elements of trading shares, commodities, indices, currencies, cryptos and ETFs in the form of CFDs, is an ingenious trading tool called ‘leverage’. It enables you to open large deals with a relatively small investment. How large? Up to 400 times your initial investment. For example, with a $200 investment, you can open a deal of up to $80,000. Please remember that while leverage allows you to maximize your trading power, it needs to be used carefully, because it also increases risk to your investment.

Short and long positions

At iFOREX, you can take advantage of any change in the price of a specific instrument – even if it’s falling. When you think the price of an instrument will fall, open a ‘Sell’ deal. This is called ‘short trading’ or simply ‘going short’. When you think the price of an instrument will rise, open a ‘Buy’ deal. This is called ‘long trading’ or ‘going long’.

CFD trading

When you invest online, you don’t need to actually buy a share or buy a gold bullion and then keep it in a safe. You invest in the price of an instrument in the form of CFDs (Contract for Difference). When you invest in oil, a single CFD means one barrel of oil. When you invest in a share, a single CFD is one share, etc.

An example of a trading deal

Completing a CFD deal with iFOREX is quick, simple and only takes four steps. Ready? Let’s get down to business.

  1. Choose an instrument
    Choosing isn’t always easy, but in this example we’ll choose for you. Let’s say you want to open a trade on a popular commodity: WTI Crude Oil, and assume a single CFD (a barrel of oil, remember?) costs $50.
  2. Choose your deal size
    The maximum leverage on oil is 200:1. So, with a $200 investment, you can open a deal of up to $40,000. Let’s look at the math:
    $200 × 200 = $40,000
    How many $50 contracts can we buy with $40,000?
    $40,000 ÷ $50 = 800
  3. Choose a direction
    Remember what we said about ‘short’ and ‘long’? In this case, we’ll go with a ‘long’ position, meaning we think that the price of oil is going to rise, and choose a ‘Buy’ deal.
  4. Close your deal
    Let’s say the price of oil rose by $2. In order to “lock” your profits, you need to close the deal. What’s your profit?
    Open rate
    Close Rate
    If you’re answer is $2, that’s not quite right, because, as you remember, we bought 800 contracts. So, your real profit is actually:
    $2 (profit) x 800 (contracts) = $1,600

Not bad, right?

In conclusion

The trading example is covering how a specific commodity is traded, but a forex trading example would have the same logic. Shares, other commodities, indices, currencies, cryptos, and ETFs are all traded by following similar steps. This allows you to use the same toolset to have a diverse portfolio of different instruments, making it more resilient to market fluctuations.

Once you get into the iFOREX platform itself, you can see how the experts do it in "The Trading Expert" section. The experts will give their reasoning for trading specific instruments of any kind, by how much, and how. You can see the results too, and witness that even the experienced traders are not fault-proof.

We hope this example helped you understand how online trading works. If you need additional information, simply contact us and we will be happy to assist.

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