Leverage

Forex Trading Examples

Going Long on GBP/USD (Sterling/US Dollar)

It is the first Friday of the month and let’s assume that GBP/USD is currently trading at 1.6283/1.6288.

Traders are concerned about the employment situation in the US. They expect the level of actual non-farm payrolls to come in worse than economist estimates. 

You expect that the US dollar will weaken and the British pound will strengthen against the US dollar, and decide to buy (go long) £100,000 on GBP/USD at 1.6288. 

The trade size is in units of the first, or base, currency in the pair. For the purpose of this example, let's say your account leverage is 100:1. 

As you anticipated, the pound strengthens against the dollar, and when it reaches 1.6350 you decide to cash in your profits. Our new price is 1.6350/1.6355 and you sell to close at 1.6350. 

Result: You bought at 1.6288 and sold at 1.6350, a rise of 62 pips. This gives you a profit of:

(1.6350 – 1.6288) x £100,000 = $620.

Profit/Loss is calculated (and denominated) in the second, or counter currency of the pair.

Profit/Loss calculation: The difference between the closing price and opening price x size of trade.

Alternative scenario: If however, the actual non-farm payroll data had come in better-than-expected, the US dollar would have strengthened against the pound. 

If GBP/USD would have gone down, say, to 1.6230 you would lose (1.6288 - 1.6230) x £100,000 = $580.

Profit/Loss Conversion: To help simplify the trading process, SGCM automatically converts trading PL into the client's denominated account currency at the prevailing market rate at the time that the trade is closed. 

Going long on AUD/USD (Aussie/Dollar)

Let’s say AUD/USD is trading at 1.0500/1.0505 at the moment. 

Traders are bracing themselves for the worst, ahead of the release of US Q2 GDP figures. 

You expect the Australian dollar will appreciate against the US dollar, i.e. the Aussie dollar will strengthen against the US dollar, and decide to buy (go long) AUD100,000 on AUD/USD at 1.0501. 

As anticipated, the Aussie dollar strengthens against the US dollar. AUD/USD rises to 1.0591 and you decide to cash in your profits. Our new price is 1.0591/1.0596. You sell to close at 1.0591. 

Result: You bought at 1.0501 and sold at 1.0591, an increase of 90 pips. This gives you a profit of: (1.0591-1.0501) x AUD100,000 = $900. 

Alternative scenario: The actual US Q2 growth rate meets expectations, thus pushing the US dollar up against the Aussie dollar. AUD/USD declines to 1.0411. In this case, you would lose (1.0501-1.0411) x AUD100,000 = $900.

Going short on EUR/USD (Euro/US Dollar)

It is mid-July, and let’s say that EUR/USD is trading at 1.4360/1.4365.

Investors remain worried about the impact of the sovereign debt crisis and you expect the euro will fall against the US dollar. You decide to sell (go short) €100,000 on EUR/USD at 1.4360. 

You were right. Euro depreciates against the dollar to 1.4251 and you decide to close your trade and take your profits. Our new price is 1.4250/1.4255 and you buy to close at 1.4251. 

Result: You sold at 1.4360 and bought at 1.4251, a fall of 109 pips, giving you a profit of: (1.4360 - 1.4251) x €100,000 = $1090. 

Alternative scenario: If however, a weaker dollar across the board overnight had pushed the Euro up by 130 points to 1.4490, you would have lost (1.4490 – 1.4360) x €100,000 = $1300. 

Going long on USD/JPY (US dollar/Japanese Yen) 

It is mid-March 2011 and USD/JPY is trading at 76.39/76.44.

The Japanese yen has surged since its worst earthquake in history due to high demand for yen as international businesses attempt to redevelop the devastated areas. 

You believe that the yen is too strong and will fall back against the US dollar, i.e. the US dollar will strengthen against the yen. You decide to buy (go long) $100,000 on USD/JPY at 76.40. 

Result: You bought at 76.40 and sold at 78.66, a rise of 226 pips, giving you a profit of: (78.66 – 76.40) x $100,000 = 226000 yen / 76.4 = $258.11.

Alternative scenario: If the dollar had continued to weaken against the yen, falling further to a record low of, say, 76.25, you would lose (76.40 – 76.25) x $100,000 = 15000 yen / 76.4 = $196.33. 

Going short on USD/CAD (US dollar/Canadian dollar)

It is mid-summer and let’s say USD/CAD is trading at 0.9520/0.9525.

A lack of progress in talks aimed at raising the US debt ceiling has weighed down on the US currency.

You expect USD/CAD will decline further and decide to sell (go short) $100,000 on USD/CAD at 0.9520.

You were right. The US dollar continues to weaken against the Canadian dollar and reaches a low of 0.9434. You decided to take your profits at this point. Our new price is 0.9430/0.9435 and you can therefore buy to close at 0.9435. 

Result: You sold at 0.9520 and bought at 0.9435, a drop of 85 pips. This gives you a profit of: (0.9520 – 0.9435) x $100,000 = CAD850 / 0.9520 = $892.85. 

Alternative scenario: If the dollar had bounced back against the Canadian dollar to 0.9600, you would have lost (0.9600 – 0.9520) x $100,000 = CAD800 / 0.9520 = 840.33. 

Note: Interest is not required to be paid on the borrowed amount, but if the investor decides to hold his position overnight, interest will be charged as the rolled over rates on the total positions held. 

Margin Requirement

Commodities Code Contract Size Margin Spread Pip price
British Pound / US Dollar GBP/USD 100,000 USD1,000/Lot 0.0005 0.0001 = USD10
Euro / US Dollar EUR/USD 100,000 USD1,000/Lot 0.0005 0.0001 = USD10
US Dollar / Japanese Yen USD/JPY 100,000 USD1,000/Lot 0.05 Depends on closing price
US Dollar / Swiss Franc USD/CHF 100,000 USD1,000/Lot 0.0005 Depends on closing price
US Dollar / Canadian Dollar USD/CAD 100,000 USD1,000/Lot 0.0005 Depends on closing price
Australian Dollar / US Dollar AUD/USD 100,000 USD1,000/Lot 0.0005 0.0001 = USD10
New Zealand Dollar / US Dollar NZD/USD 100,000 USD1,000/Lot 0.0005 0.0001 = USD10
Euro / British Pound EUR/GBP 100,000 USD1,000/Lot 0.0010 Depends on GBP/USD
Euro / Japanese Yen EUR/JPY 100,000 USD1,000/Lot 0.10 Depends on USD/JPY
Euro / Swiss Franc EUR/CHF 100,000 USD1,000/Lot 0.0010 Depends on USD/CHF
British Pound / Japanese Yen GBP/JPY 100,000 USD1,000/Lot 0.10 Depends on USD/JPY
Australian Dollar / Japanese Yen AUD/JPY 100,000 USD1,000/Lot 0.10 Depends on USD/JPY

• The spread amount is not guarantee and can be changed if market moves rapidly (such as large currency interventions). SGCM has the right to adjust spreads without prior notice to the Client.

• Margin Requirement can be changed and increase according to market fluctuation. Client agrees to deposit by immediate wire transfer such additional margin when and as required by the SGCM.

• SGCM entitled to the market situation follow changes in market conditions to adjust margin requirements and trading spread.

Margin Call

A Margin Call is a level nominated by a brokerage that sets out the minimum amount of money required to trade in the market. If your account falls below the margin call level, you will need to make a further deposit in order to maintain your open positions. Or should you prefer you can close some of your outstanding positions to reduce your margin requirement.

Stop Out Level

In the event that you are unable to maintain sufficient funds in your account after reaching the Margin Call level, and if the value of your account subsequently depreciates to the Stop Out level, your positions will be closed automatically, in order to prevent further losses to your capital.