Forex Trading Example

The forex trading is characterized by the use of a large financial lever. The opportunity to earn big profits with little effort, makes the foreign exchange market in a fair event, which is not only reserved for large financial intermediaries. In order to understand exactly what the lever is and how its effect, it is helpful to give an example in mind.

A trader believes that the euro will gain against the U.S. dollar. He opens up a long position in the EUR / USD currency pair. With a long position will be set to rising prices. At the opening of the course is at 1.4320. This means that for a Euro 1.4320 U.S. dollars shall be paid. Important: It is at this course at the ask price. The Bid is the price at which opens opposite position or long position is closed. He is expected to be in this example, two pips below the ask price, and thus at 1.4318. The difference between the bid and ask price is known as the spread or bid-ask spread. It sees itself as the profit of Forex Brokers. The forex broker calls on this trade one percent of the equivalent position at the opening as equity part. The trader uses 100 euros and can move to a position with a value of 10,000 euros. At the specified rate ie 14,320 units sold U.S. dollar against the euro. Now the value of the euro against the dollar increases by one percent, the ask amounts for forex broker to $ 1.4463 per euro. The bid price at which the position is now closed out is, again two pips less and thus 1.4461. The profit of the trader is now calculated as follows: First, the entry price divided by the closing price. The resulting quotient is then multiplied by the position size (10,000 euros). This yields a value of 10,098 euros. Of which the wager is deducted (10,000 euros), resulting in a profit of € 98 euros, 98 percent of the capital invested yields.