Tuesday 18 September 2012

Forex Trading Examples


Forex Trading Examples


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In the following section you can find a short overview of succesfull real life trading decisions in such financial Markets as: Forex, Futures, Indices and Contracts for Difference. We advise you to examine this section after you get yourself familiar with the basic material regarding trading financial instruments.

1. Buying the EUR/USD currency pair in the Forex Market

  • Initial conditions: Funds: 100 USD. Credit leverage chosen by the client: 1:200.
  • For instance, at 09:15 h. we purchase 0.1 Lot of the European currency (in real terms 10 000 units) at the price of 1.5415 USD for 1 EUR. Without leverage, buying such a large amount of Euros requires the whole 1.5415*10000 = 15415 USD.
  • Admiral Markets AS offers an interest-free credit leverage up to 1:200. Thus, in this case we need only 15415/200 = 77.08 USD of free funds on our trading account.
  • One pip (i.e. a change in the exchange price of 0.0001) is equal to 1 USD when the EUR/USD trade is 0.1 Lot.
  • Later that day, at 21:45 h. the price reaches 1.5550. If we decide to take profit at this point by closing the trading position manually (directly from the MetaTrader 4 terminal) or by using the option to set a Take Profit order in advance, which would be executed automatically on the Admiral Markets AS trading server at the indicated price.
  • The difference between the position’s opening price and closing price is 1.5550-1.5415 = 0.0135 (i.e. 135 pips).
  • The profit earned equals 135*1 = 135 USD. So the total funds on the trading account after the position is closed: 100+135 =235 USD. As a result, the return on the investment (from the initial deposit) is 135% in 12 hours and 30 minutes.
  • If we had opened a Buy position of 0.01 Lot (using 7.71 USD of funds on our account), we would have received 13.50 USDor if we had opened a position to Buy 1 Lot (using 770.75 USD of funds on our account), we would have received 1350 USD.

2. Selling the EUR/USD currency pair in the Forex Market 

 

  • Initial conditions: Funds (trading account): 2000 USD. Credit leverage 1:100.
  • At 09:10 we open a EUR Sell position with a volume of 1 Lot (in real terms: 100 000 units) at the price of 1.5730 USD for 1 EUR. To open such a position it’s not required to have previously purchased Euros (or to have it on the trading account) because all financial operations will be calculated in US dollars, i.e. in the deposit currency. Without a leverage, selling such amount of Euros would require the whole 1.5730*100000 = 157300 USD.
  •  With a leverage of 1:100 we only need 157300/100 = 1573 USD of free funds on the trading account.
  • One pip (i.e. a change in the exchange price of 0.0001) is equal to 10 USD of profit or loss for a trader when the trade volume is 1 Lot EUR/USD.
  • At 15:55 the price reaches the value 1.5640. The decision to take profit is made exactly at this point. It is possible to close a trading position manually, directly from the MetaTrader 4 terminal, or by setting a Take Profit order in advance (it will be executed automatically on the Admiral Markets AS. trading server at the indicated price).
  • The difference between the position’s opening price and closing price is 1.5730-1.5640 = 0.0090 (i.e. 90 pips).
  • The profit earned equals 90*10 = 900 USD. So the total funds on the trading account after the position is closed: 2000+900 = 2900 USD. As a result, the return on the initial investment (from the initial deposit) is 45% in 6 hours 45 minutes.
  • If we had opened a position with a volume of 0.01 Lots (using 15.73 USD from our account), the profit would have been 9 USD. If we had opened a Sell position with a volume of 0.1 Lots (using 157.30 USD of funds on our account), the profit would have been 90 USD.

3. Buying Crude Oil Futures (Contracts for Difference) 


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  • Initial conditions: Funds (trading account): 1000 USD.
  • At 14:15 we purchase 0.5 Lots of Light Sweet Crude Oil (#QM) at the price of 137.55 USD for one barrel (1 Lot equals 500 barrels of oil). Without credit leverage, the margin requirements for 1 Lot of Crude Oil is set to 1350 USD, so for the purchase of half of a Lot is only 1350*0.5 = 675 USD of free funds is required to be on the trading account.
  • One pip (i.e. a change in the oil price of 0.01) is equal 2.50 USD of profit or loss for a trader when the volume of a trade is0.5 Lot (for a round Lot one pip is equated to 5 USD as indicated in the #QM specification).
  • The next day at 16:30 the oil price reaches the value of 144.70 USD for 1 barrel. Let's assume that the decision to take profit is made exactly at this point. In MetaTrader 4  It is possible to close a trading position manually, directly from the terminal, or by setting the pending Take Profit order in advance, which would be executed automatically on the Admiral Markets AS trading server at the indicated price.
  • The difference between the opening price and closing price is 144.70-137.55 = 7.15 USD (i.e. 715 pips).
  • The profit earned equals 715*2.5 = 1787.50 USD. As indicated in the #QM specification, a commission to the broker for transferring the position to the following day (Swap Long) should be 10*0.5 = 5 USD. So the total funds on the trading account after the position is closed: 1000+1787.5-5 = 2782.5 USD. As a result, the return on the initial investment (from the initial deposit) is 178.25% in less than one day.
  • If we had opened a Buy position of 0.01 Lot (using 13.50 USD of funds on our account), the profit would have been 35.75 USD. A position with a volume of  1 Lot (using 1350 USD of funds on our account), would have given a profit of 3575 USD.

4. Buying Microsoft Corp. equities (Contracts for Difference) 

  

  • Initial conditions: Funds (trading account): 3000 USD. Credit leverage for all US Stocks CFDs: 1:10.
  • At 15:05 after the opening of the trading session at the NASDAQ Stock Exchange (USA) we purchase 500 CFDs (i.e. 500 shares) of Microsoft Corporation at the price 25.25 USD for one share (the total amount of transaction is 500*25.25 = 12625 USD). With the help of 1:10 credit leverage, for the fulfillment of this transaction we only need 12625/10 = 1262.50 USD of free funds + the commission to the broker would be 500*0.06 = 30 USD (as indicated in [MSFT] specification).
  • Later that day at 19:15 the price reaches 26.45 USD for one share. If the decision to take profit is made exactly at this point. In MetaTrader 4  It is possible to close a trading position manually, or by setting the pending Take Profit order in advance, which would be executed automatically on the Admiral Markets AS trading server at the indicated price.
  • The difference between the opening price and closing price is 26.45-25.25 = 1.20 USD, i.e. the cost of 500 shares now makes 500*26.45 = 13225 USD.
  • The profit earned equals 13225-12625 = 600 USD. So the total funds on the trading account after the position is closed: 3000+600-30 = 3570 USD

5. Buying [DJI30] index CFD 

  • Initial conditions: Funds (trading account): 300 USD.
  • At 16:05 we make the decision to purchase 1 lot of [DJI30] (i.e. 1 contract for difference of the Dow Jones Industrial Average Index) at the price of 7910 USD. Our margin requirements for index trading are 2% of the transaction size, so for the purchase of one lot, it is necessary to have 7910*0.02 = 158.20 USD of free funds available on the trading account.
  • One index point (i.e. a change in the price of 1.0) is equal to 1 USD of profit or loss for a trader when a volume of 1 Lot is traded, as indicated in the [DJI30] specification.
  • The same day at 17:15 the index reaches a value of 7972. Let's assume the decision to take profit is made exactly at this point. In MetaTrader 4  It is possible to close a trading position manually, or by setting the pending Take Profit order in advance, which would be executed automatically on the Admiral Markets AS trading server at the indicated price.
  • The difference between the opening price and closing price is 7972-7910 = 62 index points.
  • The profit earned equals 62*1 = 62 USD. So the total funds on the trading account after the position is closed: 300+62 =362 USD.

6. Selling [FTSE100] index CFD

  • Initial conditions: Funds (trading account): 1500 USD.
  • At 11:25 we make the decision to sell 5 lots of [FTSE100] (i.e. 5 contracts for difference of the Financial Times Stock Exchange 100 Index) at the price of 3987.5 GBP. For opening such position it is not required to have previously purchased an index CFD. Our margin requirements for index trading are 2% of the transaction size, so for the purchase of one lot it is necessary to have 3987.5*0.02*5 = 398.75 GBP.
  • For example, the Forex market rate of the GBP/USD currency pair currently equals 1.4992. Converting to USD, we will need 398.75*1.4992 = 597.81 USD of free funds available on the trading account in order to open the position.
  • One index point (i.e. a change in the price of 1.0) is equal to 5 GBP of profit or loss for a trader when a volume of a trade is 5 Lots, as indicated in the [FTSE100] specification.
  • The same day at 13:10 the index reaches a value of 3965.0. Let’s assume that the decision to take profit is made exactly at this point In MetaTrader 4  It is possible to close a trading position manually, or by setting the pending Take Profit order in advance, which would be executed automatically on the Admiral Markets AS trading server at the indicated price.
  • The difference between the opening price and closing price is 3987.5-3965.0 = 22.5 index points.
  • The profit earned equals 22.5*5 = 112.5 GBP. For example, the Forex market rate of GBP/USD currency pair is currently equal to 1.4933. Converting to USD currency, we have earned 112.5*1.4933 = 168 USD. The total funds on the trading account after the position is closed: 1500+168 = 1668 USD.

7. Buying US Dollar Index Future CFD (#DX)

  • Initial conditions: Funds (trading account): 500 USD.
  • At 11:55 we make the decision to purchase 1 lot of #DX (i.e. 100 contracts for difference of US Dollar Index Future) at the price of 84.958 USD. Our margin requirements for index trading are 2% of the transaction size, so for the purchase of one lot, it is necessary to have 84.958*100*0.02 = 169.92 USD of free funds available on the trading account.
  • One point (i.e. a change in the price of 0.01) is equal to 0.10 USD of profit or loss for a trader when the volume of a trade is 1 Lot, as indicated in the #DX specification.
  • The same day at 12:59 the index reaches a value of 85.450. We will assume that the decision to take profit is made exactly at this point. In MetaTrader 4  It is possible to close a trading position manually, or by setting the pending Take Profitorder in advance, which would be executed automatically on the Admiral Markets AS trading server at the indicated price.
  • The difference between the opening price and closing price is 85.450-84.958 = 0.492, i.e. 492 points.
  • The profit earned equals 492*0.10 = 49.20 USD. So the total funds on the trading account after the position is closed: 500+49.20 = 549.20 USD
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