Trading Examples

Trading markets in general and forex trading in particular involves numbers. Currencies are denominated in numbers and the contracts used to trade forex are based on numbers. Effective risk management requires traders to know their trading positions, exposure and profit/loss potential. Consequently, it is imperative for traders to understand the calculations involved in placing forex trades.

The following examples are used to illustrate the calculations involved in forex trading. Please note that these examples are for illustrative purposes only and are not to be construed in any way as constituting investment advice. Similarly, the performance figures quoted are estimates and may not be a reliable indicator of future performance for this investment.

Trading Glossary and Definitions.
Definitions
Standard Lot = 100,000 units. Pip value = $10.
Mini Lot = 10,000 units. Pip value = $1.
Micro Lot = 1,000 units. Pip value = $0.10.

Consequently, a Mini Lot is 10% the size of a Standard Lot and a Micro Lot is 10% the size of a Mini Lot and 1% the size of a Standard Lot.

A Pip refers to the amount of change in a Forex pair. For example, if the EUR moved from 1.1000 to 1.1035 against the USD, it moved 35 pips.

Please note: Most ECN systems today operate on a 5 decimal system, including a 5 decimal that is a 10th of a pip. This allows even smaller increments to translate into potential gains by obtaining more accurate price changes. The 4th decimal will always refer to a full PIP unit:

x.xxxX - 4 decimal system (fixed spread trading), last digit is a single pip

x.xxxXx - 5 decimal system (ECN trading) - the 4th digit still refers to a pip, and the 5th digit may be referred to as a pipette or a fractional pip.

Example:

Standard Instrument: 4 Decimal Place EUR/USD 1.1025
Take for example a movement of 10 pips.

EUR/USD 1.1025 + 10 pips = 1.1035 OR  1.1025 + 0.0010 = 1.1035

When the Instrument contains 5 Decimal Places so; EUR/USD 1.10253 then;
Take for example a movement of 10.1 pips.

EUR/USD 1.10253 + 10.1 pips = 1.10354 OR  1.10253 + 0.00101 = 1.10354

A 10 pip movement on a standard 4 decimal place instrument, may be considered as 10 pips and as 100 points on a 5 decimal system. 100 points on a 5 decimal system count as a 10 pip movement. 

A trader enters a long position (buys) 50,000 Euros , thereby selling US Dollars at $1.1000 and exits at $1.1070.

  • Purchase at a market price of $1.1000, the USD value of the position, also referred to as quote or counter currency exposure, is 50,000 x $1.1000 = $55,000
  • With a margin requirement of 0.5% (1:200) leverage, $275 will be recognized as utilized margin to open the position until the trade is closed.
  • Margin = actual market exposure / leverage * market price
    So; Margin = 50,000 / 200 * 1.1000 = $275.
    Profit on closing the position at 1.1070 is 70 pips.
    Profit or Loss = Change in price * actual market volume (exposure)
    So; Profit = (1.1070 – 1.1000) * 50,000 = $350

Note: Margin Requirements and Profits or Losses are shown in the base currency (USD / EUR / GBP) chosen by the client on account opening.

Key Trade Details:
  • Lot Size: 0.5 (lots) * 100,000 (Standard FOREX Contract Size) = 50,000 – which is the base currency market exposure
  • Leverage: 1:200, which can also be expressed as 0.5% Margin Requirement
  • Market Exposure: Euro 50,000 long, USD 55,000 short
  • Profit: Change in price * actual market exposure
  • Margin: Actual market exposure / leverage * market price

A trader enters a short position (sells) 100,000 AUD, thereby buying USD at $0.7400 and exits at $0.7450.

  • A 100,000 unit position equates to 1 Standard Lot
  • Sale at a market price of 0.7400, the USD value of the position, also referred to as quote or counter currency exposure, is 100,000 x 0.7400 = $74,000
  • With a margin requirement of 1.0% (1:100) leverage, $740 will be recognized as utilized margin to open the position until the trade is closed.
  • Margin = actual market exposure / leverage * market price
    So; Margin = 100,000 / 100 * 0.7400 = $740
    Loss on closing the position at 0.7450 is 50 pips.
    Profit or Loss = Change in price * actual market volume (exposure)
    So; Loss = (0.7400 – 0.7450) * 100,000 = $500

Note: Margin Requirements and Profits or Losses are shown in the base currency (USD / EUR / GBP) chosen by the client on account opening.


Key Trade Details:

  • Lot Size: 1 (lot) * 100,000 (Standard FOREX Contract Size) = 100,000 – which is the base currency market exposure
  • Leverage: 1:100, which can also be expressed as 1% Margin Requirement
  • Market Exposure: AUD 100,000 short, USD 74,000 long
  • Profit: Change in price * actual market exposure
  • Margin: Actual market exposure / leverage * market price

A trader enters a long position (buys) 200,000 GBP, thereby selling JPY at 161.80 JPY and exits at 162.40 JPY. Also, consider that the USDJPY rate on execution was at 120.00 JPY, which is used for consequent USD conversion.
* - Reminder, all rates used in these equations are presumptive and do not represent previous or actual market rates.

  • Purchase at a market price of 161.80, the JPY value of the position, also referred to as quote or counter currency exposure, is 200,000 x 161.80 = 32,360,000 JPY
  • With a margin requirement of 0.5% (1:200) leverage, the result must be divided by the USDJPY rate to convert to US Dollars. The resulting value will be recognized as utilized margin to open the position until the trade is closed.
  • Margin = actual market exposure / leverage * market price
    So; Margin = 200,000 / 200 * 161.80 = 161,800 JPY. To convert from JPY to US dollar, divide by the relevant rate. So; 161,800 / 120.00 (USDJPY rate) = $1,348
    Profit on closing the position at 162.40 is 60 pips.
    Profit or Loss = Change in price * actual market volume (exposure)
    So; Profit = (162.40 – 161.80) * 200,000 = 120,000 JPY. To convert to US dollars, divide by the relevant rate. So; 120,000 / 120.00 = $1,000

Note: Margin Requirements and Profits or Losses are shown in the base currency (USD / EUR / GBP) chosen by the client on account opening.


Key Trade Details:

  • Lot Size: 2 (lots) * 100,000 (Standard FOREX Contract Size) = 200,000 – which is the base currency market exposure
  • Leverage: 1:200, which can also be expressed as 0.5% Margin Requirement
  • Market Exposure: GBP 200,000 long, JPY 32,360,000 short
  • Profit: Change in price * actual market exposure
  • Margin: Actual market exposure / leverage * market price

Cross Rate Pairs involve any pair that doesn’t consist of a USD base or quote (base/quote).
While the USD isn’t one of the GBP/JPY pair, it is important and is used when making calculations.
The GBP/JPY is considered a cross GBP-base, JPY-quote.

A trader enters a short position (sells) 50,000 EUR, thereby buying GBP at £0.7700 and exits at £0.7780. Also, consider that the GBPUSD rate on execution was at $1.2400, which is used for consequent USD conversion. *Reminder, all rates used in these equations are presumptive and do not represent previous or actual market rates.

  • Sale at a market price of £0.7700, the GBP value of the position, also referred to as quote or counter currency exposure, is 50,000 x 0.7700 = £38,500
  • With a margin requirement of 1% (1:100 leverage), the result must be multiplied by the GBPUSD rate to convert to US Dollars. The resulting value will be recognized as utilized margin to open the position until the trade is closed.
  • Margin = actual market exposure / leverage * market price * Relevant conversion rate GBPUSD
    So; Margin = 50,000 / 100 * 0.7700 = £385. To convert from GBP to US dollar, multiply by the relevant rate. So; 385 * 1.2400 (GBPUSD rate) = $477
    Loss on closing the position at £0.7780 is:
    Profit or Loss = Change in price * actual market volume (exposure)
    So; Loss = (0.7700 – 0.7780) * 50,000 = £400. To convert to US dollars, multiply by the relevant rate. So; 400 * 1.2400 = $496

Note: Margin Requirements and Profits or Losses are shown in the base currency (USD / EUR / GBP) chosen by the client on account opening.


Key Details:

  • Lot Size: 0.5 (lots) * 100,000 (Standard FOREX Contract Size) = 50,000 – which is the base currency market exposure
  • Leverage: 1:100, which can also be expressed as 1% Margin Requirement
  • Market Exposure: EUR 50,000 short, GBP 38,500 long
  • Profit: Change in price * actual market exposure
  • Margin: Actual market exposure / leverage * market price

Cross Rate Pairs involve any currency pair that doesn’t consist of a USD base or quote (base/quote).
While the USD isn’t one of the EUR/GBP pair, it is important and is used when making calculations.
The EUR/GBP is considered a cross EUR-base, GBP-quote.

A trader enters a long position (buys) 100,000 USD, thereby selling CAD at 1.3315 Canadian Dollars and exits at 1.3355 Canadian Dollars.

  • Purchase at a market price of 1.3315 CAD, the CAD value of the position, also referred to as quote or counter currency exposure, is 100,000 x 1.3315 = 133,150 CAD
  • With a margin requirement of 0.5% (1:200 leverage), this equates to a margin requirement of 665.75 Canadian Dollars. Conversion to obtain the USD value entails dividing 665.75 by the actual market price of USDCAD.
  • So; 665.75 / 1.3315 = $500 which will be recognized as utilized margin to open the position until the trade is closed.
    Margin = actual market exposure / leverage * market price / Conversion rate to USD
    So; Margin = 100,000 / 200 * 1.3315 / 1.3315 = $500
    Profit on closing the position at 1.3355 is:
    Profit or Loss = Change in price * actual market volume (exposure)
    So; Profit = (1.3355 – 1.3315) * 100,000 = $400

Note: Margin Requirements and Profits or Losses are shown in the base currency (USD / EUR / GBP) chosen by the client on account opening.


Key Details:

  • Lot Size: 1 (lot) * 100,000 (Standard FOREX Contract Size) = 100,000 – which is the base currency market exposure
  • Leverage: 1:200, which can also be expressed as 0.5% Margin Requirement
  • Market Exposure: USD 100,000 long, CAD 133,150 short
  • Profit: Change in price * actual market exposure
  • Margin: Actual market exposure / leverage * market price

The following examples are used to illustrate the calculations entailed in Gold Trading. Please note that these examples are for illustrative purposes only and are not to be construed in any way as constituting investment advice. Similarly, the performance figures quoted are estimates and may not be a reliable indicator of future performance for this investment.

1. XAU/USD Mini Lot

A trader enters a long position (buys) 50 ounces of Gold, thereby selling US Dollar, at 1,250 and exits at 1,290.

  • Purchase at a market price of 1,250, the USD value of the position, also referred to as quote exposure, is 50 x 1,250 = $62,500
  • With a margin requirement of 1% (1:100) leverage, $625 will be recognized as utilized margin to open the position until the trade is closed.
  • Margin = actual market exposure / leverage * market price
    So; Margin = 50 / 100 * 1,250 = $625.
    Profit on closing the position at 1,290 is 40 pips.
    Profit = Change in price * actual market volume (exposure)
    So; Profit = (1,290 – 1,250) * 50 = $2,000.

Note: Margin Requirements and Profits or Losses are shown in the base currency (USD / EUR / GBP) chosen by the client on account opening.


Key Trade Details:

  • Lot Size: 0.5 (lots) * 100 ounces (Standard Gold Contract Size) = 50 ounces – which is the base market exposure, in this example referring to the gold exposure. Note: Gold is traded as a CFD (contract for difference), as such standard contract size may be subject to change. Always check on your platform for contract specifications, or contact us directly. Any changes will be communicated in advance, through the NSFX website.
  • Leverage: 1:100, which can also be expressed as 1% Margin Requirement
  • Market Exposure: XAU 50 long, USD 62,500 short
  • Profit: Change in price * actual market exposure
  • Margin: Actual market exposure / leverage * market price
2. XAU/EUR Standard Lot

A trader enters a short position (sells) 100 ounces of Gold, thereby buying US Dollars, at 1,180 and exits at 1,200.

  • Purchase at a market price of 1,180, the USD value of the position, also referred to as quote or counter currency exposure, is 100 x 1,180 = $118,000
  • With a margin requirement of 1% (1:100 leverage), $1,180 will be recognized as utilized margin to open the position until the trade is closed.
  • Margin = actual market exposure / leverage * market price
    So; Margin = 100 / 100 * 1,180 = $1,180
    Loss on closing the position at 1,200 is 20 pips.
    Profit or Loss = Change in price * actual market volume (exposure)
    So; Loss = (1,180 – 1,200) * 100 = $2,000

Note: Margin Requirements and Profits or Losses are shown in the base currency (USD / EUR / GBP) chosen by the client on account opening.


Key Trade Details:

  • Lot Size: 1 (lot) * 100 ounces (Standard Gold Contract Size) = 100 ounces – which is the base market exposure, in this example referring to the gold exposure. Note: Gold is traded as a CFD (contract for difference), as such standard contract size may be subject to change. Always check on your platform for contract specifications, or contact us directly. Any changes will be communicated in advance, through the NSFX website.
  • Leverage: 1:100, which can also be expressed as 1% Margin Requirement
  • Market Exposure: XAU 100 short, USD 118,000 long
  • Profit: Change in price * actual market exposure
  • Margin: Actual market exposure / leverage * market price

USOIL Standard Lot

A trader enters a long position (buys) 1,000 barrels of US_OIL, thereby selling US Dollars, at a market price of $35.75 and exits at $36.28.

  • Purchase at a market price of 35.75, the USD value of the position, also referred to as quote or counter currency exposure, is 1,000 x 35.75 = $35,750
  • With a margin requirement of 1% (1:100 leverage), $357.50 will be recognized as utilized margin to open the position until the trade is closed.
  • Margin = actual market exposure / leverage * market price
    So; Margin = 1,000 / 100 * 35.75 = $357.50
    Profit on closing the position at 36.28 is 53 pips.
    Profit or Loss = Change in price * actual market volume (exposure)
    So; Profit = (36.28 – 35.75) * 1,000 = $530

Note: Margin Requirements and Profits or Losses are shown in the base currency (USD / EUR / GBP) chosen by the client on account opening.

Key Details:

  • Lot Size: 1 (lot) * 100 Barrels = 100 Barrels – which is the base market exposure, in this example referring to the oil exposure. Note: Oil is traded as a CFD (contract for difference), as such standard contract size may be subject to change. Always check on your platform for contract specifications, or contact us directly. Any changes will be communicated in advance, through the NSFX website.
  • Leverage: 1:100, which can also be expressed as 1% Margin Requirement
  • Market Exposure: Oil 1,000 long, USD 35,750 short
  • Profit: Change in price * actual market exposure
  • Margin: Actual market exposure / leverage * market price

Index Trading Examples

The following examples are used to illustrate the calculations entailed in Index Trading. Please note that these examples are for illustrative purposes only and are not to be construed in any way as constituting investment advice. Similarly, the performance figures quoted are estimates and may not be a reliable indicator of future performance for this investment.

1. S&P 500 CFD

A trader enters a long position (buys) 5 lots of US_500, at a market price of $1,990 and exits at $2,012.

    • PPurchase at a market price of 1,990, the USD value of the position, is 5 x 1,990 = $9,950
    • With a margin requirement of 1% (1:100 leverage), $99.50 will be recognized as utilized margin to open the position until the trade is closed.
    • Margin = actual market exposure / leverage * market price
      So; Margin = 5 / 100 * 1,990 = $99.50
      Profit on closing the position at 2,012 is:
      Profit or Loss = Change in price * actual market volume (exposure)
      So; Profit = (2,012 – 1,990) * 5 = $110

Note: Margin Requirements and Profits or Losses are shown in the base currency (USD / EUR / GBP) chosen by the client on account opening.


Key Details:

    • Lot Size: 5 (lots) * 1 (Standard US_500 Contract) = 5 Units of US_500 – which is the base market exposure, in this example referring to the US_500 exposure. Note: Indices are traded as a CFD (contract for difference), as such standard contract size may be subject to change. Always check on your platform for contract specifications, or contact us directly. Any changes will be communicated in advance, through the NSFX website.
    • Leverage: 1:100, which can also be expressed as 1% Margin Requirement
    • Market Exposure: US_500 is 5 contracts, USD equivalent is $9,950
    • Profit: Change in price * actual market exposure
    • Margin: Actual market exposure / leverage * market price
2. NASDAQ CFD

A trader enters a long position (buys) 0.5 lots of US_100, at a market price of $4,230 and exits at $4,200.

  • Purchase at a market price of 4,230, the USD value of the position, is 0.5 x 4,230 = $2,115
  • With a margin requirement of 1% (1:100 leverage), $21.15 will be recognized as utilized margin to open the position until the trade is closed.
  • Margin = actual market exposure / leverage * market price
    So; Margin = 0.5 / 100 * 4,230 = $21.15
    Loss on closing the position at 4,200 is:
    Profit or Loss = Change in price * actual market volume (exposure)
    So; Loss = (4,200 – 4,230) * 0.5 = $15

Note: Margin Requirements and Profits or Losses are shown in the base currency (USD / EUR / GBP) chosen by the client on account opening.


Key Details:

  • Lot Size: 0.5 (lots) * 1 (Standard US_100 Contract) = 0.5 Units of US_100 – which is the base market exposure, in this example referring to the US_100 exposure. Note: Indices are traded as a CFD (contract for difference), as such standard contract size may be subject to change. Always check on your platform for contract specifications, or contact us directly. Any changes will be communicated in advance, through the NSFX website.
  • Leverage: 1:100, which can also be expressed as 1% Margin Requirement
  • Market Exposure: US_100 is 0.5 contracts, USD equivalent is $2,115.
  • Profit: Change in price * actual market exposure
  • Margin: Actual market exposure / leverage * market price

Note: For indirect rate pairs, the formula changes slightly. In order to calculate in USD terms, the Current Rate must be factored in terms of the quote. For example, in this case, the number of Canadian Dollars needed to buy $1.00 USD. In this example CAD1.3315 = $1.00 USD


Indirect Rate Pairs involve any in which the USD is the base (base/quote).
The USD/CAD is considered an indirect pair USD-base, CAD-quote.

Note: All calculations were made on a fixed spread basis. NSFX also offers professional ECN accounts with variable, raw market spreads and a fixed commission of 0.8 pip.