Forex trading examples

See how to buy and sell currency in practice, with illustrated forex trading examples on FX CFDs and forex DMA.

All forex trading works in a fundamentally similar way – you take advantage of the movement of one currency against another in a pair, earning a profit if you predict the pair’s movement correctly and a loss if you don’t. But there are key differences between the different methods of trading forex, and each bring specific benefits that might suit you as a trader.

Find out more about the ways of trading forex offered by IG, with in-depth examples of each to help decide which is best for you.

Trading a GBP/EUR CFD

GBP/EUR is trading at 1.1284, with a buy price of 1.1285 and a sell price of 1.1283, giving it a spread of 2 points. You think that the pound is set to gain value against the euro, so you decide to buy the market at 1.1285.

The size of a CFD position is measured in contracts, with each contract equal to a single lot of the base currency in the pair. In this case, buying a single GBP/EUR CFD is the equivalent of trading £100,000 for €112,850. You decide to buy three CFDs, giving you a total position size of €338,550 (£300,000). This means you’ll earn €30 for every point of movement.

CFDs are a leveraged product, so you don’t have pay the full value of your position upfront. GBP/EUR has a margin factor of 2%, so you only have to commit €6771 – or £6000 – as margin.

If your prediction is correct

The pound rises against the euro, and GBP/EUR is now trading at 1.1309, with a buy price of 1.1310 and a sell price of 1.1308. You reverse your trade to close your position, so you sell three contracts at 1.1308.

Your £300,000 is now worth €339,240, because 1.1308 x (100,000 lot size x 3 CFDs) = €339,240. €339,240 – €338,550 = €690, which is your profit from the trade. You could also calculate this as 11308 – 11285 = 23, which you multiply by €30 per point to get €690.

As ever, you’d have had to pay funding charges if you kept your position open overnight.

If your prediction is wrong

The pound falls against the euro, and GBP/EUR is trading at 1.1259, with a sell price of 1.1258.

1.1258 x (100,000 lot size x 3 CFDs) = 337,740, which means your three contracts are now worth €337,740, €810 less than when you opened your position. Another way to calculate this is to subtract 11258 from 11285, which gives you a loss of 27 points. 27 x 30 euros per point = €810.

You will have paid funding charges if you held the position overnight.

Buying GBP/EUR: trading example

Underlying price

1.1284

Sell / buy price

1.1283 / 1.1285

Deal

Buy at 1.1285

Deal size

Three contracts

Initial outlay

€6771

Capital gains tax

Payable on profits

Commission

None

Other potential charges

A funding charge if you keep your position open overnight.

Market movement

Rises 25 points to 1.1309

Falls 25 points to 1.1259

Closing price

Sell at 1.1308

Sell at 1.1258

Calculation

1.1285 x (3 CFDs x €100,000) = €338,550

1.1308 x (3 CFDs x €100,000) = €339,240

339,240 – 338,550 = €690

1.1285 x (3 CFDs x €100,000) = €338,550

1.1258 x (3 CFDs x €100,000) = €337,740

337,740 – 338,550 = -€810

Profit / loss

€690 profit

€810 loss

 

Trading EUR/USD via forex DMA

EUR/USD is trading at 1.17598, with a buy price of 1.17599 and a sell price of 1.17597. Because this is forex DMA, you’ll see a list of available buy and sell prices on your deal ticket, with the best prices listed at the top and other available prices below.

Sell prices

Buy prices

Lots

Price

Lots

Price

10

1.17597

20

1.17599

20

1.17596

30

1.17600

10

1.17595

75

1.17601

15

1.17594

20

1.17602

You want to buy EUR/USD, so you place a limit-day order to buy five CFDs (equal to five lots) at 1.17599. This is the equivalent of buying €500,000 for $587,995. We’ll instantly check whether you have sufficient margin to cover the trade – EUR/USD has a margin factor of 2%, so you’ll need to deposit $11,759.90 as margin.

If you have the funds to cover the trade, then we’ll place the order on your behalf. If the order is accepted, we’ll create a parallel CFD between you and us.

Forex DMA is charged via commission instead of the spread, which means you’ll have to pay a fee to open your position. Our commission rates are variable, depending on how much FX you’ve traded in the previous month.

FX traded in the previous month (USD million)

Commission (USD per million)

1500+

10

<1500

20

<500

30

<100

60

 

So if you’ve traded $300 million in forex CFDs in the previous month, your commission would be $30 for every million USD you’re trading. (30/1,000,000)*$587,995 = $17.64, which would be the commission you pay on the trade.

If your prediction is correct

EUR/USD rises to 1.18048, and based on the orders you can see you decide to put in an order to sell your five CFDs at 1.18045. It’s accepted, and your $587,995 is now worth $590,225, earning you a profit of $2,230 – or $2212.36 once you’ve factored in the $17.64 commission.

You’ll also have to pay funding charges.

If your prediction is wrong

EUR/USD falls to 1.17148, and you put in an order to sell your five CFDs at 1.17145. Your $587,995 is now worth $585,725, meaning you’ve lost $2,270. Including commission, you’ve lost $2287.64, plus any funding charges.

Buying EUR/USD: trading example

Underlying price

1.17598

Sell / buy price

1.17597 / 1.17599

Deal

Buy at 1.17599

Deal size

Five contracts

Initial outlay

$11,759.90

Capital gains tax

Payable on profits

Commission

$17.64

Other potential charges

A funding charge if you keep your position open overnight.

Market movement

Rises 45 points to 1.18048

Falls 45 points to 1.17148

Closing price

Sell at 1.18045

Sell at 1.17145

Calculation

1.17599 x (5 CFDs x $100,000) = $587,995

1.18045 x (5 CFDs x $100,000) = $590,225

$590,225 – $587,995 = $2230

$2230 – $17.64 = $2212.36

1.17599 x (5 CFDs x $100,000) = $587,995

1.17145 x (5 CFDs x $100,000) = $585,725

$585, 725 – $590,225 = -$2270

-$2270 – $17.64 = -$2287.64

Profit / loss

$2212.36 profit

$2287.64 loss

 

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