Forex Trading Examples

How to Trade CFDs

The following five steps provide a brief description of CFD trading:

Choose the financial instrument: select the instrument, such as EUR/USD or UK100, that you wish to trade. We offer CFDs on a wide range of global markets, including currencies, indices, commodities, stocks and treasury bonds, cryptocurrencies and ETFs.

Choose to buy or sell - Buy (go long): If you believe prices will rise, or sell (go short) if you believe prices will fall.

Enter your trade size: decide how many units you want to trade. The value of a CFD unit can vary depending on the instrument you have chosen for your trade.

Manage your risk: select from a variety of orders to manage potential losses, including guaranteed stop-loss orders (GSLO). GSLOs work exactly the same as normal stop loss orders, except that, for a premium, they guarantee to close a trade at the price you specify regardless of market volatility and/or gaps. The premium will be refunded in full if the guaranteed stop loss order is not executed.

Monitor your position: after placing your trade, monitor your open positions (including stop orders or take profit orders) to track your profits or losses in real time. Remember that losses can exceed the margin, but not the account deposit (account balance), due to the "negative balance protection" clause for retail clients.

Close your position: if your trade does not close automatically as a result of a stop loss or take profit order, close your trade when you consider appropriate.

To help you better understand how forex or foreign exchange market trading works, we propose the following examples of long (buying) and short (selling) positions.

Trading with Forex CFDs

Example 1: buying the EUR/GBP pair

The EUR/GBP pair is trading at 0.84950 / 0.84960.

You decide to buy 50,000 EUR because you believe that the price of the EUR/GBP pair will rise. The EUR/GBP pair has a margin percentage at level 1 of our platform of 3.33%, which means you have to deposit 3.33% of the total value of the position as margin for said position. Therefore, in this example, your position margin will be 1,670 EUR (3.33% x 50,000 EUR).

On our platform, investment is always made in euros, just as the required margins are also calculated in euros.

When entering in the "quantity" section of the order ticker on the platform, the nominal amount we want to invest, in this case €50,000, our ticker automatically informs the client what the required margin will be for said position, in this case €1,670 (equivalent to 3.34% of €50,000, as we calculated above).

Result A: winning trade

The price rose in the following hour to 0.86210 / 0.86221. You decide to close your long trade through a sell operation at 0.86210 (the current selling price).

The price has moved 68 points (0.86210 – 0.85530) in your favor.​

Your profit is ([€50,000 x 0.86210] – [€50,000 x 0.85530]) = £340, which at this time has an equivalent in euros of €467.12* (*obviously, this gain will depend on the exchange rate when we close the operation)

Result B: losing trade

The price of the EUR/GBP pair falls in the following hour to 0.84861 / 0.84872. You estimate that the price will predictably continue in a downward trend so you decide to limit your losses and close your position at 0.84861 (the current selling price) to close your position.

The price has moved 68 points (0.84861 – 0.85541) against you.

Your loss is ([€50,000 x 0.84861] – [€50,000 x 0.85541]) = –£340, which at this time has an equivalent in euros of -€467.12 (obviously, this gain will depend on the exchange rate when we close the operation)

Example 2: selling the EUR/USD pair

EUR/USD is trading at 1.13010 / 1.13020.

Suppose that German manufacturing data is poor and indicates that the euro is likely to fall against the dollar in the coming days. You decide to sell €70,000 because you believe that the price of EUR/USD will fall.

EUR/USD has a margin requirement of 3.33% at Level 1, which means you would only have to initially deposit 3.34% of the total value or nominal of your position as margin. Therefore, in this example the initial required margin will be €2,337.79 (3.34% x 70,000).

Result A: winning trade

The price of the EUR/USD pair falls in the next hour to 1.12210 / 1.12217. You decide to close your short or selling position through a buy operation at 1.12217 (the current buying price).

The price has moved 2.2 points (1.12217 – 1.12239) in your favor.​​

Your profit is ([€70,000 x 1.12239] – [€70,000 x 1.12217]) = $15.4 which would be equivalent to a gain of €13.72* (*this will depend on the current exchange rate at the time of closing the operation)

Result B: losing trade

The price of the EUR/USD pair rises in the next hour to 1.12872 / 1.12879. You estimate that the price is likely to continue rising, so you decide to limit your losses and close your position. Therefore you decide to buy at 1.12879 (the current buying price) and close your position.

The price has moved 64 points (1.12879 – 1.12239) against you.

Position Holding Costs

If you hold your position after 5 pm New York time (11:00 pm Madrid time), your account will be debited or credited with the Position Holding Cost (in the case of the Forex Market also called TomNext). A priori and depending on the breadth of interest rate differentials between the two economies (on which you have bought the currency and on which you have sold), 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 information about our Position Holding Costs for Forex you can refer to the "Overview" section of our Next Generation Platform for the relevant pair.