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FOREX Trading Examples

DOLLAR/YEN TRADE
 
The Spread:
Imagine the USD/JPY rate is quoted at '117.00/03'. This quote represents the bid/offer spread for USD vs JPY that in this case would be 0.03.
 
The Offer:
The offer rate of 117.03 is the rate at which you can buy USD to sell JPY
 
The Bid:
The bid rate of 117.00 is the rate at which you can Sell USD to buy JPY
 
Going Long:
You believe that the US Dollar will strengthen against the Japanese Yen, and decide to BUY or 'go long' USD 500,000 @ 117.03 (the offer price).
 
Opening Buy:
Customer BUYS USD 500,000 @ 117.03.
 
Quote (bid/offer) 117.00/03
Buy Price 117.03
Volume USD 500,000
Initial Outlay (using 1% margin) USD 5,000
Costs (at 5 pips) on USD = USD 250
 
Later:
Your prediction is correct and the US Dollar appreciates against the Japanese Yen. The quote on USD/JPY is now 117.65/68. To close your position, you decide to SELL USD 500,000 @ 117.65 (bid price).
 
Closing Sell:
Customer SELLS USD 500,000 @ 117.65
 
Quote (bid/offer) 117.65/68
Sell Price 117.65
Volume USD 500,000
Profit/Loss JPY 310,000 profit
Costs (at 5 pips) on USD = USD 250
 
Profit/Loss Calculation:
Size of trade x (sell price - buy price)    =    JPY profit or loss
500,000 x (117.65 - 117.03)    =    JPY 310,000 profit
 
Or, converting the JPY 310,000 back to USD at a rate of 117.65
 
Profit/Loss Calculation:
(Profit/loss ÷ USD rate)    =    USD profit or loss
(310,000 ÷ 117.65)    =    USD 2,634.93 profit
Total Costs    =    USD 500 (250+250)
 
By closing your position to realise a net profit of USD 2134.93

This is obviously a favourable outcome, had the price moved against you would have incurred an equivalent loss. Blue Index strongly recommend the use of stop losses on every trade to mitigate potential downside.

For further information on FOREX Trading please call the trading desk on +44 (0) 20 7398 2553