FOREX TRADING EXAMPLES
GBP VS USD (CFD): Buying one lot
When you hold a CFD or spread bet account with ADSS, you trade forex in lots. We offer standard, mini and micro lots, where each lot has a size of 100,000, 10,000 and 1,000 of the first named currency respectively.
Let’s say you think the GBP will strengthen against the US dollar, so you decide to go long, i.e. buy the GBP/USD currency pair.
The pair is currently quoted at 1.2915-1.2916. The spread is the difference between 1.2915 and 1.2916, or one pip. Since you are looking to go long by one standard lot, (let’s say 100,000 GBP), you will be buying at the ask (or offer) price of 1.2916.
One week later, the pair is quoted at 1.3015-1.3016 and you decide to take your profits by closing your position and selling GBP/USD at 1.3015.
The profit for the trade is therefore 1.3015-1.2916 * 100,000, which is 99 pips. This equates to a monetary profit of $990. The profit is always in the second-named or the quote currency.
There will be holding costs incurred when forex trading. This will be the difference between the interest rates in the currency pair. You should always ask your broker for these costs before you trade.
To learn how to start, visit the ADSS Education Centre.
EUR VS USD (CFD): Selling one lot
Let’s say you think the euro will weaken against the US dollar, so you decide to go short, i.e. sell the EUR/USD currency pair.
The pair is currently quoted at 1.1601-1.1602. The spread is the difference between 1.1601 and 1.1602, or one pip. Since you are looking to go short by one standard lot, i.e. 100,000 EUR, you will be selling at the bid price of 1.1601.
One week later, the pair is quoted at 1.1700-1.1701 and you decide to take a loss by closing your position, i.e. buying EUR/USD at 1.1701.
The loss for the trade is therefore (1.1601-1.1701 * 100,000), which is 100 pips. This equates to a monetary loss of $1,000.
The profit is always in the second-named or the quote currency.
There will be a holding cost incurred when forex trading. This will be the difference between the interest rates in the currency pair. You should always ask your broker for these costs before you trade.
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