Forex Trading Examples

The FX Quote

Forex is quoted in how many units of the quote currency you receive for one unit of the base currency. For example, if you are looking to trade EURUSD, the Euro is the BASE currency and the USD is the QUOTE currency, also known as the counter currency. The EURUSD quote refers to the current amount of USD that you would receive for one Euro. When trading FX you are using your skills to anticipate if the value of the base currency, the first named currency, will rise or fall against the quote currency, the second named currency.


The FX Trade

Taking the example of EURUSD, when opening a trading position you will either be


  1. Buying Euro and simultaneously Selling USD
  2. or
  3. 2.Selling Euro and simultaneously Buying USD.

If you are buying EUR as an opening trade then you are looking for the Euro to appreciate in value against the US Dollar, meaning your ONE Euro will be worth more USD at a later time then when you bought the Euro. If you are selling EUR as an opening trade then you are looking for the Euro to depreciate in value against the US Dollar, meaning your ONE Euro will be worth less USD at a later time then when you sold the Euro.


  • Spot Forex Trading Example
  • Spot Metal Trading Example
Spot Forex EUR/USD
Quote 1.23206 / 1.23226
Contract Size €100,000
Trading Unit 0.00010
Opening SELL Opening BUY
The quote means you can sell at: 1.23206 The quote means you can buy at: 1.23226
Strategy:You believe the Euro will go lower against the USD, you sell 1 contract at 1.23206 Strategy:You believe the Euro will go higher against the USD, you buy 1 contract at 1.23226
Margin Requirement:You need to have the required margin of $1000 per contract available on your account Margin Requirement:You need to have the required margin of $1000 per contract available on your account
Contract Size::1 standard contract is €100,000 Trading Unit: 0.00010 meaning your profit/loss per contract will be $10 per 0.00010 price increment Contract Size:1 standard contract is €100,000 Trading Unit: 0.00010 meaning your profit/loss per contract will be $10 per 0.00010 price increment
The value of 1 contract in USD is
Price x Contract Size 1.23206 x 100000 = $123206
The value of 1 contract in USD is
Price x Contract Size 1.23206 x 100000 = $123206
Interest Adjustment: With a position of Short EURO and Long USD there will be a debit of $1.15 per night Interest Adjustment:With a position of Short EURO and Long USD there will be a debit of $1.15 per night
The following day the value of the EURO falls against the USD due to better than expected US Non-Farm Payroll Figures. EURUSD is now quoted at: 1.22637 / 1.22657
Closing BUY Closing SELL
Strategy:You decide to take your profit and close the position by buying 1 contract at 1.22657 Strategy::You decide to take your loss and close the position by selling 1 contract at 1.22637
Profit Calculation:Value of sale in USD - Value of purchase in USD + interest adjustment Profit Calculation:Value of sale in USD - Value of purchase in USD + interest adjustment
$123206 - $122657 = $549 + -$1.15 = $547.85(Profit) $122637 - $123226 = -$589 + -$2.07 = -$591.07(Loss)
Interest Adjustment

As this is a rolling spot forex contract, for each night the position remains open you will be debited or credited an amount that reflects the difference between the interest received from holding the currency that is notionally being bought against the interest paid for borrowing the currency that is being notionally sold. An administration charge is then applied to the calculated interest rate.

Spot Metal XAU/USD
Quote 637.68 / 638.18
Contract Size 100 Oz
Trading Unit 0.10
Opening SELL Opening BUY
The quote means you can sell at:637.68 The quote means you can buy at:638.18
Strategy:You believe the price of Gold will go lower, you sell 1 contract at 637.68 Strategy:You believe the price of Gold will gohigher, you buy 1 contract at 638.18
Margin Requirement:You need to have the required margin of $1000 per contract available on your account Margin Requirement:You need to have the required margin of $1000 per contract available on your account
Contract Size:1 standard contract is 100 Oz and the Trading Unit is 0.10 meaning your profit or loss per contract will be $10 per $0.10 price increment Contract Size:1 standard contract is 100 Oz and the Trading Unit is 0.10 meaning your profit or loss per contract will be $10 per $0.10 price increment
The value of 1 contract in USD is Price x Contract Size 637.68 x 100 = $63768 The value of 1 contract in USD is Price x Contract Size 638.18 x 100 = $63818
Interest Adjustment:Position not held overnight no interest adjustment Interest Adjustment:Position not held overnight no interest adjustment
Later that day the price of gold falls on rumours of a large central bank sell order and our spot GOLD quote is 628.23 / 628.73
Closing BUY Closing SELL
Strategy:You decide to take your profit and close the position by buying 1 contract at 628.73 Strategy:You decide to take your loss and close the position by selling 1 contract at 628.23
Profit Calculation:Value of sale in USD - Value of purchase in USD Profit Calculation:Value of sale in USD - Value of purchase in USD
$63768 - $62873 = $895 (Profit) $62823 - $63818 = -$995 (Loss)
Interest Adjustment

As this is arolling spot gold contract,for each night the position remains open you will be debited or credited an amount that reflects the difference between the interest received from holding the currency or commodity that is notionally being bought against the interest paid for borrowing the currency or commodity that is being notionally sold. An administration charge is then applied to the calculated interest rate.


 

Trading foreign exchange on margin carries high potential rewards but also high potential risks that may not be suitable for all investors. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience and risk appetite. Past performance is not indicative of future results, which can vary due to market volatility. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.