Your profit or loss is determined by the difference between the entry and exit price on a trade. Remember that prices are always quoted with the sell price on the left and the buy price on the right. You enter a trade via one and exit via the other. To help you understand how forex trading works, view our CFD examples below, which take you through both buying and selling scenarios.
CFD trading example 1: buying EUR/GBP
EUR/GBP is trading at 0.84950 / 0.84960.
You decide to buy $50,000 because you think the price of EUR/GBP will go up. EUR/GBP has a tier 1 margin rate of 0.20%, which means that you only have to deposit 0.20% of the total position’s value as position margin. Therefore, in this example your position margin will be $84.95 (0.20% x [$50,000 x 0.84955]).
Remember that if the price moves against you, it is possible to lose more than your investment of $84.95.
Outcome A: profitable trade
Your prediction was correct and the price rises over the next hour to 0.85530 / 0.85540. You decide to close your long trade by selling at 0.85530 (the current sell price).
The price has moved 57 points (0.85530 – 0.84960) in your favour.
Your profit is ([$50,000 x 0.85530] – [$50,000 x 0.84960]) = $285.
Outcome B: losing trade
Unfortunately, your prediction was wrong and the price of EUR/GBP drops over the next hour to 0.84390 / 0.84400. You feel the price is likely to continue dropping, so to limit your losses you decide to sell at 0.84390 (the current sell price) to close the trade.
The price has moved 57 points (0.84960 – 0.84390) against you.
Your loss is ([$50,000 x 0.84960] – [$50,000 x 0.84390]) = –$285.
CFD trading example 2: selling EUR/USD
EUR/USD is trading at 1.13010 / 1.13020.
Let's assume poor German manufacturing data indicates that the euro is likely to fall against the US dollar in the coming days. You decide to sell $70,000 because you think the price of EUR/USD will go down.
EUR/USD has a tier 1 margin rate of 0.20%, which means that you only have to deposit 0.20% of the total position’s value as position margin. Therefore, in this example your position margin will be $158.21(0.20% x [$70,000 x 1.13015]).
Remember that if the price moves against you, it is possible to lose more than your position margin of $158.21.
Outcome A: profitable trade
Your prediction was correct and EUR/USD drops over the next hour to 1.12510 / 1.12520. You decide to close your short trade by buying at 1.12520 (the current buy price).
The price has moved 49 points (1.13010 – 1.12520) in your favour.
Your profit is ([$70,000 x 1.13010] – [$70,000 x 1.12520]) = $343.
Outcome B: losing trade
Unfortunately, your prediction was wrong and the price of EUR/USD rises over the next hour to
1.13800 / 1.13810. You feel the price is likely to continue rising, so to limit your losses you decide to buy at 1.13810 (the current buy price) to close the trade.
The price has moved 80 points (1.13010 – 1.13810) against you.
Your loss is ([$70,000 x 1.13010] – [$70,000 x 1.13810]) = –$560.
Holding costs
If you hold any position after 17:00 New York time, you will be charged a holding cost, or if the position has a fixed expiry the cost is built into the price of the product.
We calculate the holding rate applicable to the holding cost based on the interbank rate of the currency in which the product is denominated. For example, the Australia 200 is based on the Banker Acceptance Bill 1 month rate. For buy positions, we charge 2.5% above this rate. For sell positions you receive this rate less 2.5%, unless the underlying interbank rate is equal to or less than 2.5%, in which case sell positions may incur a holding cost.
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