CFDs (Currencies)
Example #1. Sell Euros with Fx-Spot (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
Example #3. Buy Gold with Fx-Spot (long position)
Imagine that your account currency is in Euros (€) and that Fx-Spot cross XAUEUR is trading at 499 (bid) / 500 (ask) Euros for one ounce of gold. You expect that Gold price in Euros will go up (Note: XAU stands for 1 troy ounce of gold, approximately 31 grams; EUR- stands for Euros).
Opening position
You decide to open a long position on Gold, therefore you buy 200 ounces of Gold, which means an investment of 100,000 Euros (500 Euros per ounce x 200 ounces).
In order to open this position, you need to make a 4,000 Euro deposit that corresponds to 100,000 € x 4 %, which is the required margin for this operation.
Closing position
45 days later, you see that your predictions were correct, Gold went up and the cross XAUEUR is now trading at 550 (bid) / 551 (ask). You decide to close your position by selling 200 ounces of Gold at 550 Euros per ounce. Your total profit amounts to [200 x (550-500) = 10,000)] 10,000 Euros (EUR).
In summary, Fx- Spot allows you to multiply your investment: with only 4,000 Euros you had an exposure of 100,000 Euros, corresponding to 200 ounces of gold. In this trade you obtained a 150% return [(10. 000 ÷ 4,000) - 1].
Trade Summary
