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 Buying Euro and simultaneously Selling USD or 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 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
    1.23226 x 100000 = $123226
    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 Long EURO and Short USD there will be a debit of $2.07 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
    trategy:You decide to take your profit and close the position by buying 1 contract at 1.22657 trategy: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
    $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.