Taking a Profit
Suppose
you go to our Charts section and take a look at the
currency pair listed as the Australian dollar to the
U.S. dollar (AUD / USD). You can look and trade on 17
currency pairs in the FXCM deal station. Before reading
on, you may want to take a look charts from our chart
section. To get a feel for a chart, click
here to view the NetDania
chart. More details will be presented later.
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Based
on higher lows where you use drawing tools to create
the blue line, you conclude that it is an upward trend.
Based
on other indicators (described in classes), you note
that the real time price listed for the AUD/USD pair
is at 0.7137 and feel it will continue to increase over
the hour or so. |
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you have already downloaded the FXCM trading station on
your computer, you will see price boxes which would appear
as on the right. The "Sell" Price on the deal
box is what correlates with the Real Time Chart. The "spread"
or difference between the Sell & Buy price listed
is 0.7142 - 0.7137 = 0.0005 points or 5 "pips".
The spread between the Sell & Buy prices on any given
pair remains constant as the prices move up or down and
is what you will pay in closing out your position. |
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| While
providing the explanation below, please know that the
trading station automatically does the calculations
so you don't need to. The following is just to help
you understand the process.
At
this point, let's suppose you opened a "Mini Account"
with $300 to trade here. If you feel the price is going
up, you would Buy low at the 0.7142 price and take a
profit by selling at a higher price. On the flip side,
if you thought prices were going to drop, you would
Sell at the higher price and Buy back at the lower price
pocketing the difference (* See explanation on selling
short).
On
Mini Accounts, each 1 "lot" trade requires
a minimum of $50 in your account. So, thinking that
the price will increase, you click the Buy box and decide
to purchase 2 "lots" at a $50 margin requirement
per lot for a total trade of $100 from your account.
With Hawaii Forex and FXCM, there are No Commissions
assessed for doing trades.
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Suppose
the price on the chart & dealer box increased
as shown on the box to the right in the next hour.
So, where you originally bought 2 lots valued
at 0.7142, you can now sell these at 0.7250 where
you would click the sell box to do the trade.
Profit
is calculated as: . 0.7250 - 0.7142 = 108 pips
x $1 USD per pip x 2 lots = $216 USD IN PROFITS.
or a 216% gain in an hour. |
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Again,
when making trades on the FXCM trading station,
calculations are automatically done in real time
for you. It will also show the assigned USD profit
per pip so you can see as prices increase or decrease
how it affects the balance in your account.
If
you'd like to see a more detailed explanation
on the same example with a different perspective
of calculations and explanation on the 200 to
1 leverage in the Mini Account, Click
Here . |
Taking
a Loss
So,
the next question is: What could you have lost?
There
are ways you to limit how much could be lost in
a transaction with the most common method being
to use a "Stop Loss Order". In this
last example, when you purchased the 2 lots at
0.7142, you could have also set a "Stop Loss"
a price slightly lower than your purchase price,
say at 0.7135. What this means is if the price
were to drop and fall to 0.7130, your 2 lots would
automatically be sold to avoid further losses.
In this case, your loss would be 0.7142 - 0.7130
= 12 pips x 2 lots x $1 USD= ($24)
USD loss.
On
a worse case scenario, if you did NOT put in a
Stop Loss order with your "Buy" (market
order) and suppose the price you would need to
sell at fell dramatically to 0.6535, FXCM would
have done a "margin call" when the price
dropped to 0.6992 meaning your 2 lot position
would have been closed "Sold". Therefore,
without a Stop Loss order, your maximum loss would
have been the $300 in your account.
See
preview Tutorial
of the FXCM trade station. Note that the example
here is on a standard account with $1,000 requirement
per margin trade but the concept is still the
same for illustration purposes. |
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