Foreign exchange trade examples

Buy example

GBP/AUD

The Bank of England is meeting in a few days and you feel they may increase their interest rates due to current inflationary pressure. As such, you think the pound will strengthen on the back of this as it becomes more attractive due to its higher interest potential.

Enter trade: In this quote panel the price of 1 British pound (GBP) is equivalent to 1.55555 Australian dollars (AUD). You therefore decide to buy £5,000 and in doing so simultaneously sell AU$7,777.75.

Deposit: Using leverage of 1% you will only need to deposit £50 (£5,000 x 1% = £50) to take out this position. Please be aware that using margin means you can lose more than your initial deposit.

Interest cost: If you hold the position overnight past 17:00 New York time, your account will be debited or credited at the prevailing rate. If you have bought a higher yielding currency you will generally receive interest, if you have bought a lower yielding currency you will generally be charged interest.

Close out trade: The Bank of England do indeed raise interest rates and GBP strengthens against the AUD to 1.60000 and you decide to sell to take your profit. Simply click the close out ‘X’ next to your position in the Account window and this will automatically close out the trade by selling £5,000 and buying back AU$8000 (5,000 x 1.60000 = $8,000)

Profit: Your initial AU$7,777.75 has now turned into AU$8,000 meaning you have made a profit of AU$222.25. The Next Gen software will automatically convert this for you at the prevailing rate so your overall profit in pounds is £138.91 (AU$222.25 ÷ 1.60000 GDP/AUD rate). To make it even easier, when your trade is live, the Positions tab will always show your profit in your local currency.

Loss scenario: If the pound had decreased in value due to there being no interest rate rise, for example, and the value of the GBP/AUD fell to 1.50000, by closing the position you would only been able to buy back AU$7,500 (5000 x 1.50000 GDP/AUD rate) meaning a loss of AU$275.75 or £183.83 (AU$275.75 ÷ 1.50000 GDP/AUD rate).

Sell example

USD /JPY

Unemployment figures in the US (Non-Farm Payrolls) are being released soon and you think the news is not going to be positive. You therefore feel that the value of the US dollar is going to decline against a stronger Japanese economy and you would like to profit from this move.

Enter trade: In this quote panel the price of 1 US dollar (USD) is equivalent to 80.200 Japanese yen (JPY). You therefore decide to sell US$10,000 and in doing so simultaneously buy ¥802,000 (10,000 x 80.200).

Deposit: Using leverage of 1% you will only need to deposit US$100 ($10,000 x 1% = $100) to take out this position. Please be aware that using margin means you can lose more than your initial deposit. The Tracker software will automatically convert this into the equivalent amount in pounds using the current spot rate between GBP and USD. Therefore your deposit will be around £61 (100 x 0.61000 - USD/GBP rate).

Close out trade: The unemployment figures do disappoint and the US dollar against the yen weakens to 78.000 and you decide to buy to take your profit. Simply click the close out ‘X’ next to this position within the Account window and this will automatically close out the trade by buying $10,000 and selling ¥780,000 (10,000 x 78.000 = 780,000).

Profit: Your initially received ¥820,000 but have only had to return ¥780,000 so you have made a profit of ¥40,000. The Next Gen software will automatically convert this for you at the prevailing rate so your overall profit in pounds is £303.03 (¥40,000 ÷ 132.00 GDP/JPY rate). To make it even easier when your trade is live, the Positions tab will always show you profit in your local currency.

Loss scenario: If the US dollar had increased in value due to positive employment figures for example, and the value of the USD/JPY rises to 85.500, by closing the position you would have had to return ¥850,000 a shortfall of 30,000 (¥820,000 – ¥850,000). This would be a loss of £227.27 (¥30,000 ÷ 132.00 GDP/JPY rate) and this would automatically be calculated for you by the Next Gen platform.