About Trading FOREX
Most FX trading software encompass a full back office function that make it easy for the trader to realize the value of open positions as well as the profit and loss of closed trades. However, it is important that traders understand how a trade works and how to calculate profits and losses manually.
Currencies can be either bought or sold, but they must be traded against each other. There are over 150 currency pairs that can be traded but the most liquid with the highest turn-over are the “majors”.
Major Currency Pairs
|EUR/USD||(Euro vs. US Dollar)|
|GBP/USD||(UK Pound vs. US Dollar)|
|USD/JPY||(US Dollar vs. Japanese Yen)|
|USD/CHF||(US Dollar vs. Swiss Franc)|
|USD/CAD||(US Dollar vs. Canadian Dollar)|
|AUD/USD||(Australian Dollar vs. US Dollar)|
Primary (base) vs. Secondary Currencies
The primary currency, or the base currency, is the reference that defines the contract size. The profit and loss calculation however is always on the secondary currency. Examples are as follows:
|Currency Pair||Contract Size||Value of 1 pip||Value of 1 pip in US$|
|EUR/USD||€ 100,000||US$ 10.00||US$ 10.00|
|GBP/USD||£ 100,000||US$ 10.00||US$ 10.00|
|USD/JPY||$ 100,000||¥ 1,000||(Divide by current USD/JPY rate)|
|USD/CHF||$ 100,000||CHF 10.00||(Divide by current USD/CHF rate)|
|USD/CAD||$ 100,000||CAD 10.00||(Divide by current USD/CAD rate)|
|AUD/USD||AUD 100,000||US$ 10.00||US$ 10.00|
Margin Requirements and Leverage
In order to buy or sell 1 contract (lot) of a particular currency pair with ICM Brokers, an investor must have a minimum of $1,000 in the account, or about 1% margin. In other words, a $1,000 initial margin is required for every Ccy 100,000 that is traded, which corresponds to a leverage of 1:100.
Though a 1% margin is initially required, ICM Brokers has no maintenance margin on standard accounts. In order to guarantee that clients’ accounts do not extend into negative equity, the trading platform automatically closes all positions at the 5% Equity/Margin ratio.
Profit and Loss Calculation Examples
• Buy 5 EUR/USD at 1.3150 | Sell 5 EUR/USD at 1.3190
1.3190 (open price) x 5 (lots traded) x 100,000 (contract size) = 659,500
1.3150 (close price) x 5 (lots traded) x 100,000 (contract size) = 657,500
$ 2,000 (Profit)
• Sell 3 USD/CHF at 1.1205 | Buy 3 USD/CHF at 1.1150
1.1205 (open price) x 3 (lots traded) x 100,000 (contract size) = 336,150
1.1150 (close price) x 3 (lots traded) x 100,000 (contract size) = 334,500
CHF 1,650 (Profit)
In order to obtain USD value, the CHF Profit amount must be divided by the Closed Price
CHF 1,650 ÷ 1.1150 (closed price) = $1,479.82