Forex trading examples

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Your profit or loss is determined by the difference between the entry and exit price on a trade. Remember that prices are always quoted with the sell price on the left and the buy price on the right. You enter a trade via one and exit via the other.

It offers the potential for traders to multiply potential profits – as well as losses.
The forex market offers some of the lowest margin rates (and therefore highest leverage) that investors can obtain, making it an extremely attractive proposition to traders who like to trade using leverage.

CFD trading example 1: buying AUD/GBP

AUD/GBP is trading at 0.55951/0.55961.
You decide to buy $50,000 because you think the price of AUD/GBP will go up. AUD/GBP has a tier 1 margin rate of 3.33%, which means that you only have to deposit 3.33% of the total position’s value as position margin. Therefore, in this example your position margin will be $1665 (3.33%*50,000).

Outcome A: profitable trade

Your prediction was correct and the price rises over the next hour to 0.56161/0.56171. You decide to close your long trade by selling at 0.55981 (the current sell price).
The price has moved 20 points (0.56161-0.55961) in your favour.​
Your profit is (0.56161-0.55961)*50,000= $100.​

Outcome B: losing trade

Unfortunately, your prediction was wrong and the price of EUR/GBP drops over the next hour to 0.55761/0.55771. You feel the price is likely to continue dropping, so to limit your losses you decide to sell at 0.55761 (the current sell price) to close the trade.
The price has moved 20points (0.55961-0.55761) against you.
Your loss is (0.55961-0.55761)*50,000= –$100.​

Example: Selling XYZ

EUR/USD is trading at 1.13010 / 1.13020.
​Let's assume poor German manufacturing data indicates that the euro is likely to fall against the US dollar in the coming days. You decide to sell $70,000 because you think the price of EUR/USD will go down.
EUR/USD has a tier 1 margin rate of 3.33%, which means that you only have to deposit 3.33% of the total position’s value as position margin. Therefore, in this example your position margin will be $2,610.65 (3.33% x [$70,000 x 1.13015]).

Outcome A: profitable trade

Your prediction was correct and EUR/USD drops over the next hour to 1.12510 / 1.12520. You decide to close your short trade by buying at 1.12520 (the current buy price).
The price has moved 49 points (1.13010 – 1.12520) in your favour.​​
Your profit is ([$70,000 x 1.13010] – [$70,000 x 1.12520]) = $343.​

Outcome B: losing trade

Unfortunately, your prediction was wrong and the price of EUR/USD rises over the next hour to 1.13800 / 1.13810. You feel the price is likely to continue rising, so to limit your losses you decide to buy at 1.13810 (the current buy price) to close the trade.​​
​​The price has moved 80 points (1.13010 – 1.13810) against you.​​
Your loss is ([$70,000 x 1.13010] – [$70,000 x 1.13810]) = –$560.​​

Holding costs

Unfortunately, your prediction was wrong and the price of EUR/USD rises over the next hour to 1.13800 / 1.13810. You feel the price is likely to continue rising, so to limit your losses you decide to buy at 1.13810 (the current buy price) to close the trade.​​
​​The price has moved 80 points (1.13010 – 1.13810) against you.​​
Your loss is ([$70,000 x 1.13010] – [$70,000 x 1.13810]) = –$560.​​

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