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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Source:http://www.admiralmarkets.com

Six steps to improve your currency trading: Fifth Step

step 5: Be In The Know with Fundamental Analysis

What influences prices in the currencies market?

Traders use fundamental analysis to try to forecast the effect that economic, social, and political events will have on currency prices. Prices in the currency market are affected by macroeconomic factors such as inflation, unemployment and industrial production. Based on the analysis of economic data, traders will take positions on the market with the objective of making a profit.

Finding information about economic data is relatively easy.XE Forex News, for example, provides streaming news and market commentary and is available for free.

Traders should focus on three main macroeconomic factors when analyzing foreign exchange rates:

Interest Rates

Each currency has an overnight lending rate determined by that country's central bank. If inflation is deemed too high, a central bank may raise the interest rate to cool down the economy. Conversely, if economic activity is sluggish, a central bank may reduce interest rates to stimulate growth. Lower interest rates usually depreciate the value of a currency – in part, because it attracts carry-trades. A carry-trade is a strategy in which a trader sells a currency with a low interest rate and buys a currency with a high interest.

Employment

The unemployment rate is a key indicator of economic strength. If a country has a high unemployment rate, it means that the economy is not strong enough to provide people with jobs. This leads to a decline in the currency value.

Geopolitical Events

These key international political events affect the foreign exchange market, as well as all other markets.

Example

In May of 2005, there was growing anticipation that France would vote against accepting the European Union Constitution. Since France was vital to Europe's economic health (and the value of the Euro), traders sold the Euro and bought the dollar; this pushed the Euro down so far that many traders thought it couldn't go any lower.

But, they were wrong. When France actually voted against the constitution, the EUR/USD currency pair fell by more than 400 pips in three days. Traders who bought the Euro lost thousands. On the other hand, traders selling the Euro made thousands.

Be aware that trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

Source: http://www.xe.com/currencytrading/improve.php

What should you know about Forex Signals ?

Six steps to improve your currency trading: Fourth Step

step 4: Chart Your Course with Technical Analysis

Technical Analysis uses charts to try to forecast future currency prices by studying past market movements. Using this technique, a trader has the ability to simultaneously monitor multiple currency pairs by evaluating how others are trading a particular currency. In our experience, because so many traders use technical analysis, and their reaction to market activity tends to be similar, the validity of this technique is strengthened. It becomes a self-fulfilling prophecy that feeds on itself, increasing the reliability of the signals generated from this analysis.

Support & Resistance

Perhaps the most effective and therefore the most popular form of technical analyses is the use of "support" and "resistance". Support is the "floor" or lower boundary that a currency pair has trouble breaching. Resistance, on the other hand, is simply the opposite: it is the upper boundary that a currency pair has trouble penetrating.

Support and Resistance are important in range bound markets because they indicate the boundaries where the market tends to change direction. When and if the market breaks through these boundaries, it is referred to as a "breakout" and is usually followed by increased market activity.

Using Support & Resistance

We can use these support and resistance levels in many ways. A range trader would want to buy above support and sell below resistance while breakout. Trend traders, on the other hand, would buy when the price breaks above a level of resistance and sell when it breaks below support.

The concept is still the same as we stated earlier. We want to buy a currency pair if we anticipate the market moving up and then sell it at higher price. We can also sell a currency pair if we anticipate the market moving down and then buy it at a lower price.

Be aware that trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

Source: http://www.xe.com/currencytrading/improve.php

What should you know about Forex Signals ?

Six steps to improve your currency trading: Second step

step 2: Learn to Manage Your Risk

In our experience, the most successful traders are not simply the ones who take the best positions. They are the ones that are smartest about risk management and disciplined in their strategy. They are never emotional about gains or losses. They set their profit target and loss limits for their positions, and use Limit Orders and Stop/Loss Orders to lock them in.

Limit Orders

A limit order instructs the system to automatically exit a position when your target profit has been achieved. This enables you to "lock in" your desired profit on a winning position.

Stop/Loss Orders

A stop/loss order instructs the system to automatically exit a position when your maximum loss limit has been hit. This enables you to cap your losses on a losing position.

Trading Discipline

Professional Traders use Limit Orders and Stop/Loss Orders as the cornerstone of a disciplined trading strategy. By setting both on all their positions, they have removed emotion from the equation and are letting the market work for them.

Amateurs, on the other hand, dont use Limit Orders and Stop/Loss Orders. They stay glued to their screens, trying to juggle all their positions in real time. They miss critical action points, and they let emotion rule their decisions.

Setting Limit and Stop/Loss Orders

As a general rule of thumb, you your Stop/Loss Orders should be set closer to the opening position price than your Limit Orders. If you do this, then you can be successful while being right less than 50% of the time.

For example, if you use a 100 pip Limit Order with a 30 pip Stop/Loss Order on all your positions, then you only to be right 1/3 of the time to make a profit.

Where you place your Limit and Stop/Loss Orders will depend on your risk tolerance. However, you need to be smart when setting them. If a Stop/Loss Order is too close to the opening position price, it can be triggered by normal market volatility. This means that a temporary dip can knock out a position before it has a chance to retrace. Similarly, if a Limit Order is set too far from the opening price, potential profit may never be realized.

Be aware that trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

Source: http://www.xe.com/currencytrading/improve.php

What should you know about Forex Signals ?

The Benefits of Forex Trading

1. 24 Hour Market

Since the forex market is worldwide, trading is continuous as long as there is a market open somewhere in the world. Trading starts when the markets open in Australia on Sunday evening, and ends after markets close in New York on Friday.

2. High Liquidity

Liquidity is the ability of an asset to be converted into cash quickly and without any price discount. In forex this means we can move large amounts of money into and out of foreign currency with minimal price movement.

3. Low Transaction Cost

In forex, typically the cost for a transaction is built into the price. It is called the spread. The spread is the difference between the buying and selling price.

4. Leverage

Forex Brokers allow traders to trade the market using leverage. Leverage is the ability to trade more money on the market than what is actually in the trader's account. If you were to trade at 50:1 leverage, you could trade $50 on the market for every $1 that was in your account. This means you could control a trade of $50,000 using only $1000 of capital.

5. Profit Potential from Rising and Falling Prices

The forex market has no restrictions for directional trading. This means, if you think a currency pair is going to increase in value; you can buy it, or go long. Similarly, if you think it could decrease in value you can sell it, or go short.

Source: http://forextrading.about.com/od/forexbasics/tp/forex_benefits.htm

The Harvest: A Simple, Step by Step Strategy for Making $300 Per Week Trading the Foreign Exchange