| Know your P&Ls? |
To illustrate an FX trade, consider the following two examples.
Let's say that the current bid/ask for EUR/USD is 1.4616/19, meaning you can buy 1 euro for 1.4619 or sell 1 euro for
1.4616.
Suppose you decide that the Euro is undervalued against the US dollar. To execute this strategy, you would buy
Euros (simultaneously selling dollars), and then wait for the exchange rate to rise.
So you make the trade: to buy 100,000 Euros you pay 146,190 dollars (100,000 x 1.4619). Remember, at 2% margin
(50:1 leverage), your initial margin deposit would be approximately $2,923 for this trade.
As you expected, Euro strengthens to 1.4623/26. Now, to realize your profits, you sell 100,000 Euros at the current
rate of 1.4623, and receive $146,230. You bought 100k Euros at 1.4619, paying $146,190. Then you sold 100k Euros at 1.4623, receiving $146,230. That's a difference of 4 pips, or in dollar terms ($146,190 - 146,230 = $40).
Total profit = US $40.
Now in the example, let's say that we once again buy EUR/USD when trading at 1.4616/19. You buy 100,000 Euros you pay 146,190 dollars (100,000 x 1.4619).
However, Euro weakens to 1.4611/14. Now, to minimize your loses, you sell 100,000 Euros at 1.4611 and receive $146,110.
You bought 100k Euros at 1.4619, paying $146,190. You sold 100k Euros at 1.4611, receiving $146,110. That's a
difference of 8 pips, or in dollar terms ($146,190 - $146,110 = $80)
Total loss = US $80.
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Disclaimer: Any trades placed upon reliance on fund manager's system are taken at your own risk for your own account. Past performance is no guarantee of future results. While there is great potential for reward trading foreign currencies, there is also substantial risk of loss in all trading. You must decide your own suitability to trade or not. Foreign current trading results can never be guaranteed.
Any opinions, news, research, analyses, prices or other information contained on this website or linked to from this website are provided as general market commentary and do not constitute investment advice. FXcellent does not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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