A Forex Trading Example

The forex trade is characterized by the use of a large financial lever. The opportunity to earn big profits with little use, makes the foreign exchange market at a fair event, which not only large financial intermediaries is reserved. In order to understand exactly what the leverage is and how its effect works, it is helpful to lead to an example in mind.

A trader believes that the euro will gain against the U.S. dollar. He therefore opened a long position in EUR / USD currency pair. With a long position is set on rising prices. At the opening of the bonds are trading at 1.4320. This means that must be paid for a € 1.4320 U.S. dollars. Important: It is at this course at the ask price. The bid price is the price at which the opposing position and opened the long position is closed. It is in this example, two pips below the ask price, and thus lie at 1.4318. The difference between bid and ask price is known as a spread or bid-ask spread. It sees itself as the profit of the Forex Brokers. The Forex brokers require at this trade one percent of the equivalent position in the opening part as equity. The trader is a 100 € and can move one position to the value of 10,000 €. At the specified rate ie 14 320 units are U.S. dollar against the euro sold. If now the value of the euro against the dollar by one percent, the ask price amounts to $ 1.4463 in Forex Broker € each. The bid rate at which the position is closed out is now, again two pips to 1.4461 and less. The profit of the trader is calculated by adding the following: First, the entry price divided by the closing price. The resulting quotient is then multiplied by the position size (10,000 €). It gives a value of 10 098 €. Of these, the wager is deducted (10,000 €), thus resulting in a profit of € 98 euros, 98 percent of capital employed.