Reviewed by Patrick Foot, Senior Financial Writer.
Forex trading allows you to speculate on price movements in the global foreign exchange market. Currency values rise and fall in relation to each other and in response to national and international economic, financial and political events.
When trading forex, you would buy a currency pair if you believed that the base currency will strengthen against the counter currency. Alternatively, you would sell a currency pair if you believed that the base currency will weaken in value against the counter currency.
You can choose to trade FX through spot FX and spread bets.
Learn more about the type of FX trades available here.
Selling (going short) GBP/USD as a spread bet
Traders are bracing themselves for Brexit. You expect the pound to depreciate against the US Dollar, i.e. the US Dollar will strengthen against the pound, and decide to sell (go short) £5 a point at 1.22262.
Note: in this example the margin as well as the p&l are calculated in pounds.
The winning trade
You were right about your suspicions, and the Pound drops against the Dollar. The rate drops to 1.22045, at which point you close your trade, netting 108.5 in profit.
The losing trade
You market didn’t move as you expected, and instead Brexit has revitalized the Pound and pushed it higher. The Pound climbs to 1.22489 before you decide to close your position.
A sell trade (going short) on EUR / USD as a spot FX trade
Investors are concerned about the upcoming elections across Europe and you expect the euro to fall against the US dollar. You decide to sell (go short) €20,000 at 1.0650.
In forex trading, the trade size is in units of the first, or base, currency in the pair
EUR/USD has a margin factor of 3.33%
The margin as well as the p&l are calculated in dollars, the counter currency of the pair.
Winning trade
The euro drops against the dollar as political event risk increases and you decide to buy €20,000 at 1.0570 to close your trade with a profit of $160.
City Index automatically converts trading P&L into the client’s denominated account currency at the prevailing market rate at the time that the trade is closed.
Losing trade
Supposing a weaker dollar across the board pushes the euro up by 50 points and you buy to close at 1.0700 you would have lost $100.
Note: in this example the margin as well as the p&l are calculated in pounds.
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