Understanding trading on indices (DOWJ) in trading 212

Hi , I am trying to understand mathematically how things work on trading with indices mainly dowj and FTSE 100.

So I will take the DOWJ as an example
Market open at 20000
I have £100 pound in my account. I choose a leverage of 1:500.
I buy one lot , so will require (20000/500) which is £40pounds.

Market close at 18000. So I have made a loss.

Questions

  1. how do I calculate the loss
    2)similarly if market close at 22000, how do I calculate profit
  2. how do I calculate minimum amount of money I need to keep my position open
  3. how long can I keep that position open
  4. silly question , how do I close a position on trading 212 if I am trading on the DOWJ for example. Can’t find close button .

I trialled with 24 option and the supposedly account manager could not answer these simple question. So planning to change to 212.

Many thanks
Cheers

You shouldn’t be trading complex and risky products like CFDs if you don’t know the answers to questions 1-3 above. Make sure you are using a demo account and research fully how the product works before using real money.

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@Kevin1990 The answers are quite intuitive:

  1. Depends on how much quantity you can buy with those funds, let’s say it’s 1. In that case, if it goes up to 22K, you’ll profit 2K, if it drops to 18K, you’ll lose 2K - simple as that. Think of it by quantity.

  2. There are formulas but that’s what the margin indicator’s for. It’ll show you much margin you have left. A general rule of thumb is - the indicator will hit 50% if you’ve used up all of your free funds. If you lose 50% of the invested sum (have only 50% of your total/initial funds left) the margin indicator will hit 25% and stop out all position.

  3. As long as you’d like if you have enough margin.

  4. There’s always an X button near the open position, this is how it looks on the mobile app:

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Hi David, thanks for your prompt reply . So I get 1 and 2 and closing of a position.

Jumping back to the margin. On trading 212, the dowj has a margin of .2%, that implies I can trade 500 times more the money I have.

Coming back to figures, the Dow open at £20000
I buy but it drop to £18000, so that a loss of £2k.

In that case opening position, I £40 to buy with a leverage of 1:500 .

  1. From £20k to £18k, my £40 will drop to £36 . Is that correct .

  2. or is it if the dowj drops to £19800 (50% of £40), it will close my position, if margin is 50 percent?

  3. trading 212, do they close a position on 50% or less for the Dowj. Where do I find this info. Second how much the DOWJ need to drop close my position If point 2 is wrong.

Is there a video from trading 212 that explain all of these?

Thanks
Regards
Kevin

No if you bought 1 CFD for DJI and it dropped $2000 your result would be a loss of $2000.

When you will get margin called and when positions will be closed depends on the total funds in the account.

You will get a margin call “low margin” warning when your account status drops bellow 45% and your positions will start closing when your account status drops below 25%. That info is found here: https://www.trading212.com/en/Frequently-asked-questions?cId=4

Account status is calculated with the following if there are free funds in the account:

Account status = Total funds / (Total Funds + Blocked funds) x 100

or if there are no free funds account status will be less than 50% and calculated with the following:

Account status = (Total funds / Blocked funds) x 50

Guys I get what you saying there,

However what I am after is the maths behind when you making losses and how your position is closed?

By knowing the maths, one can work out how much can afford to loose or how much more money to put to prevent a position from closing .

That’s y I took the Dow as example of opening at 200000, dropping to 18,000 and having 100 quid in my account .

Hope you can help with the math or point where they explain the math please.
Cheers
Kevin

Using your numbers with GBP for all values so I don’t need to do any currency conversion.

CFD starting price = £20,000
Account Value = £100
Leverage = 1:500

As David explained your positions will be margin called when you have used up your free funds.

You buy 1 CFD for £20,000 your margin required is
Margin required -> £20,000 / 500 = £40
Free funds remaining -> £100 - £40 = £60
So you would be margin called when the position lost £60 in value aka @£19,940

Your positions when you have 50% of the margin required left.
50% Margin -> £40 / 2 = £20
Loss to reach 50% margin - > £100 - £20 = £80
So your positions would close when you lost £80 so @£19,920

I hope I did the maths correctly (I probably didn’t it is late). This will only be an estimation in reality the margin would change as the stock priced moved. You would not use these values in reality a professional account with £100 and a 0.3% stock decrease resulting in you being margin called.

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Guys , that’s was helpful. Does it work the same for stock ??

So in that case, Boeing got a leverage of 1:20, I bought 20. The loss is 20 x( 152.43 -153.08 ) =-13 roughly as shown in picture .

I start making profit if share price goes above 153.08? Right .

Cheers
Kev