Currencies
Example #1. Sell of Euros with CFDs (short position)
Imagine that your account currency is in Euros (EUR). The cross EURUSD is trading at 1.25 (bid) / 1.26 (ask) and you believe that the EUR will fall against USD (US Dollar).
Opening position
You decide to open a short position by selling Euros. If you negotiate 150,000 Euros, it means that you sell each Euro at 1.25 US Dollars (for each euro sold, the investor receives 1.25 USD, i.e. bid price), which means 187,500 USD.
In order to open this position, you are required to deposit 1,875 USD which corresponds to 187,500 USD x 1 %, which is the margin required for this operation (1% of trade notional is required as margin).
Closing position
5 days later, you see that your predictions were correct and Euro has fallen against US Dollar and currently trades at 1.19 (bid) / 1.20 (ask). You decide to close your position by buying Euros at 1.20 USD and receive the difference between the opening price and closing price (1.25 USD -1.20 USD) x 150,000. This represents a gain of 7,500 USD.
In summary, you can multiply your investment: with just 1,875 USD, you shorted 150,000 Euros and obtained a 300% return, if measured in USD [(7,500÷1,875)-1].
Note: Given the simplicity of the example and the short time horizon, the swap charge effect that would marginally alter final profit shown above, has not been considered.
Trade Summary
