A Simple Trade Example



A Simple Trade Example


Here is a to-do list of actions to be taken as you open a trade

  • Identify the pair to buy/sell
  • Decide on the initial investment amount
  • Choose the appropriate leverage
  • Consider applying trade limits
  • Open Trade

Let’s say that after spending some quality time on gazing at the charts of several currencies, you’ve concluded that

  • The EUR is trending up
  • The USD is trending down

Now, what is the reasonable decision based on this conclusion?

Clearly you can profit by first selling USD and buying EUR, and then buying cheaper USD and sell expensive EUR.

We could do this by buying and then selling the EUR/USD currency pair.

A reminder buying is done at ‘Ask’ price, while selling is done at the “Bid” price

Imagine that you bought $100 worth of EUR/USD with a leverage of 1:100 at the exchange rate of1.5461. The details of your trade are:

Investment $100
Leverage 1:1000
Units sold 10,000
EUR/USD (Ask) 1.5461

In plain English, what you’ve just done is bought (100 x100=) 10000 Units of EUR / USD, which at that specific rate represents 1.5461 USD per 1 EUR.

Now, let’s assume that at the end of the day, or possibly even a few minutes later, the EUR/USD rate has risen to 1.5538. You sell those 10,000 Euro/USD Units at the new rate of 1.5538 and get $177 back.

This means that this seemingly insignificant fluctuation in the rate allows you to cash in $77 from an initial investment of $100