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Forex trading examples

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

All trading involves risk. Losses can exceed deposits.

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 three ways of trading forex offered by IG, with in-depth examples of each to help decide which is best for you.

Spread betting GBP/USD

GBP/USD is trading at 1.32586, with a 1-point spread. Spread betting markets are always listed in points, so you’ll see a market price of 13258.6, with a buy price of 13259.1 and a sell price of 13258.1.

When forex spread betting, you select a certain number of pounds per point of movement to determine your position’s size. You think that GBP/USD is headed downwards, so you sell the market at 13258.1 and bet £5 per point.

13258.1 x £5 per point = £66,290.5, which is your total position size. But since spread betting is a leveraged product, you only have to pay the margin factor for your chosen market. GBP/USD has a margin factor of 1%, meaning you have to put down £629.05.

If your prediction is correct

GBP/USD falls to 13198.6, with a buy price of 13199.1 and a sell price of 13198.1. You close a spread bet by dealing in the opposite direction to when you opened the position, so you buy £5 per point at 13199.1.

You’ve earned £5 for every downward point of movement, and 1.3258.1 – 13199.1 = 59, so the market has moved 59 points in your favour. 59 x 5 = 295, meaning you’ve earned £295 profit.

There’s no commission or tax to pay with spread betting,* but you’d have had to pay a funding charge if you kept your position open overnight.

If your prediction is wrong

GBP/USD rises to 13318.6, with a buy price of 13319.1 and a sell price of 13318.1. You buy £5 per point at 13319.1 to close the trade.

You’ve lost £5 for every upward point of movement. 13319.1 – 13258.1 = 61, and 61 x £5 per point = £305 – so you’ve lost £305 on the trade.

Once again, you’d also have had to pay a funding charge if you kept your position open overnight.

Selling GBP/USD: example trade

Underlying price

13258.6

Sell / buy price

13258.1 / 13259.1

Deal

Sell at 13258.1

Deal size

£5 per point

Initial outlay

£629.05

Capital gains tax

None

Commission

None

Other potential charges

A funding charge if you keep your position open overnight.

Market movement

Falls 60 points to 13198.6

Rises 60 points to 13318.6

Closing price

Buy at 13199.1

Buy at 13319.1

Calculation

13258.1 – 13199.1 = 59

£5 per point x 59 = £295

13258.1 – 13319.1 = -61

£5 per point x -61 = -£305

Profit / loss

£295 profit

£305 loss

 

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 1%, so you only have to commit €3385.50 – or £3000 – 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 – and you’ll also have to pay capital gains tax on any profits.

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 23 points. 23 x 30 euros per point = €810.

As this is a losing trade, you don’t have to pay capital gains tax and you can offset a CFD loss against future profits for CGT purposes.* You will have paid funding charges if you held the position overnight, however.

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

€3385.50

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 1.1309

Sell at 1.1259

Calculation

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

1.1309 x (3 CFDs x €100,000) = €339,240

339,240 – 338,550 = €690

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

1.1259 x (3 CFDs x €100,000) = €337,740

337,740 – 338,550 = -€810

Profit / loss

€690 profit

€810 loss

 

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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 0.5%, so you’ll need to deposit $2939.98 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 CGT and any 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

$2939.98

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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