Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Forex trading examples

To help you understand how forex trading works, view our examples below using contracts for difference (CFD trading), which take you through both buying and selling scenarios.

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Forex trading example 1: buying EUR/GBP

EUR/GBP is trading at 0.84950 / 0.84960.

You decide to buy €20,000 because you think the price of EUR/GBP will go up. EUR/GBP has a margin rate of 3.34%, which means that you only have to deposit 3.34% of the total position value as position margin. Therefore, in this example your position margin will be £567.50 (3.34% x [€20,000 x 0.84955]).

Remember that if the price moves against you, it is possible to lose more than your investment of £567.50.

Outcome A: winning trade

Your prediction was correct and the price rises over the next hour to 0.85530 / 0.85540. You decide to close your long trade by selling at 0.85530 (the current sell price).

The price has moved 57 points (0.85530 – 0.84960) in your favour.

Your profit is ([€20,000 x 0.85530] – [€20,000 x 0.84960]) = £114.​

Outcome B: losing trade

Unfortunately, your prediction was wrong and the price of EUR/GBP drops over the next hour to 0.84390 / 0.84400. You feel the price is likely to continue dropping, so to limit your losses you decide to sell at 0.84390 (the current sell price) to close the trade.

The price has moved 57 points (0.84960 – 0.84390) against you.

Your loss is ([€20,000 x 0.84960] – [€20,000 x 0.84390]) = –£114.​

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Forex trading example 2: selling EUR/USD

EUR/USD is trading at 1.13010 / 1.13020.

Let's assume poor German manufacturing data indicates that the euro is likely to fall against the US dollar in the coming days. You decide to sell €20,000 because you think the price of EUR/USD will go down.

EUR/USD has a margin rate of 3.34%, which means that you only have to deposit 3.34% of the total position value as position margin. Therefore, in this example your position margin will be $754.94 (3.34% x [€20,000 x 1.13015]). The platform will automatically convert the position margin amount into your account currency at the prevailing CMC Markets conversion rate.

Remember that if the price moves against you, it is possible to lose more than your position margin of $754.94.

Outcome A: winning trade

Your prediction was correct and EUR/USD drops over the next hour to 1.12510 / 1.12520. You decide to close your short trade by buying at 1.12520 (the current buy price).

The price has moved 49 points (1.13010 – 1.12520) in your favour.

Your profit is ([€20,000 x 1.13010] – [€20,000 x 1.12520]) = $98.​

Outcome B: losing trade

Unfortunately, your prediction was wrong and the price of EUR/USD rises over the next hour to 1.13800 / 1.13810. You feel the price is likely to continue rising, so to limit your losses you decide to buy at 1.13810 (the current buy price) to close the trade.

The price has moved 80 points (1.13810 – 1.13010) against you.

Your loss is ([€20,000 x 1.13810] – [€20,000 x 1.13010]) = –$160.​​

Holding costs

If you hold your position past 5pm New York time (10pm UK time), your account will be debited or credited at the prevailing holding rate. If you have bought a higher yielding currency, you may receive interest; if you have bought a lower yielding currency, you may be charged interest. For more details on our FX overnight holding rates, please refer to the 'Product Overview' section on the platform for the relevant pair.

The forex market offers some of the lowest margin rates for spread betters and CFD traders, find out more about forex leveraged trading.

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CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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