# 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 three 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 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 27 points. 27 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.

 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 1.1308 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

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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.

 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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* Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.

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