Trading Examples

Forex Trading Examples

The MetaTrader 4 trading software used at ICM includes full back office functionality that makes it easier for the trader to manage the value of open positions, as well as the profit and loss of closed trades. However, it is important traders understand how a trade works and how to calculate profits and losses manually, which we explain in more detail below.

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 is always derived from the secondary currency. All currencies are traded in pairs, with the base currency being the first currency of the pair, and the 'quote' or 'term' currency being the second currency in the pair. Examples are as follows:

In order to buy or sell 1 contract (lot) of a particular currency pair, the client must have a minimum of $1,000 in the account, or an approximate 1% margin. This means a $1,000 initial margin is required for every 100,000 in currency traded, which corresponds to a leverage of 1:100. If the trader has less than $1,000, they can still trade, but this will be with less than 1 lot.

ICM has no maintenance margin, however, a 1% margin is initially required on standard accounts. In order to ensure client 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 1.3450 | Sell 5 EUR/USD at 1.3490

1.3450 (open price) x 5 (lots traded) x 100,000 (contract size) = 672,500

=1.3490 (close price) x 5 (lots traded) x 100,000 (contract size) = 674,500

$ 2,000 (Profit)

Buy 5 EUR/USD at 1.3156 | Sell 5 EUR/USD at 1.3124

1.3156 (open price) x 5 (lots traded) x 100,000 (contract size) = 657,800

1.3124 (close price) x 5 (lots traded) x 100,000 (contract size) = 656,200

$ 1,600 (Loss)

Sell 3 USD/CHF at 0.8982 | Buy 3 USD/CHF at 0.8924

0.8982 (open price) x 3 (lots traded) x 100,000 (contract size) = 269,460

0.8924 (close price) x 3 (lots traded) x 100,000 (contract size) = 267,720

CHF 1,740 (Profit)

Sell 3 USD/CHF at 0.9141 | Buy 3 USD/CHF at 0.9191

0.9141 (open price) x 3 (lots traded) x 100,000 (contract size) = 274,230

0.9191 (close price) x 3 (lots traded) x 100,000 (contract size) = 275,730

CHF 1,500 (Loss)