Forex Examples
Close

Your feedback is important to us!

How would you rate our site on a scale of 1 to 5, 5 being the highest and 1 being the lowest?

  • 1
  • 2
  • 3
  • 4
  • 5

Please enter your feedback in the box below and tell us what you think !

Refresh

Trading

Forex

Learn about the basics and history of the biggest financial market in the world.

Forex Example 

Let's say you have a view that the Euro/US Dollar foreign exchange rate is going to rise. This means that you expect the Euro to get stronger and the US dollar to get weaker (the first currency in the pair is the known as the base currency and it is in terms of that currency that you decide to buy or sell).

The margin requirement is 1% which means you can trade 100 times what you have in your account. If you have £2,000 in your account, you could trade in up to £200,000 worth of Eur/Usd. If Gbp/Eur is at 1.1500 then this means you could do 230,000 Eur/Usd (£200,000 x 1.1500).

So let's say you choose to buy 100,000 Eur/Usd. If you are using the MetaTrader platform then you would buy 1 lot as on that system FX trades in clips of 100,000, although you can do as little as 0.1 lots which is 10,000.
So let's assume that you decide to Buy 1 lot of Eur/Usd on MetaTrader. The following are examples of what could happen. Note: When you buy (wanting a market to go up) you are dealing on the higher price, and when you sell (wanting a market to go down) you are dealing on the lower price.

Market goes down

You have bought 1 Lot at 1.3552
Current price is 1.3515
You close your position and Sell
You make a Loss
1.3552 - 1.3515 = 37 Ticks
You lose 100,000 X 0.0037 = $370

Market goes up

You have bought 1 lot at 1.3552
Current price is 1.3580
You close your position and Sell
You make a Profit
1.3552 - 1.3580 = 28 Ticks
You make 100,000 X 0.0028 = $280

So in the above example if you had bought 1 lot of Eur/Usd you can see how you would have made money in the example where the price rose and lost money if the market had fallen. Note that your profit or loss is always in the secondary currency.

When you open a new position in a spread bet it is advisable to place a stop loss against that trade, either at the time of entry or after the position has been established.

A stop loss will give you a certain degree of protection on any open positions as it will close your position automatically should the market move significantly against you. 

Although it must be noted that stop losses are not guaranteed and in some circumstances you may find that a stop loss order has been executed at a price that is significantly different to the original order level. This is known as 'Gapping'.

You can also leave limit or take profit orders so that if the market does move in the direction you hoped for then if it reaches a preset level chosen by you the position will be closed out automatically.

RISK WARNING

All financial products traded on margin carry a high degree of risk to your capital. They are not suited to all investors and you can lose more than your initial deposit. Please ensure that you fully understand the risks involved, and seek independent advice if necessary. See our full Risk Warning on our Terms of Business and our Privacy Policy.