Forex Examples

Selling the euro

This example takes you through a short-term position: 'selling' Spot EUR/USD with a Trailing Stop.

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On the morning of 1 July 2011 our EUR/USD price stands at 14310-14311 .

You believe the euro will fall against the dollar over the short term and decide you will 'sell' £10 per point at the bid price of 14310.

To limit your risk, and without having to monitor the EUR/USD price constantly, you want to use one of our risk management tools. You could place a Stop Order to close the position at a less favourable level. This would close you position if the price moved against you.

However, if the price moves in your favour this Stop won't lock in profit. A Trailing Stop, however, tracks your profitable positions automatically. In this case, it would track downwards if the EUR/USD price were to fall.

You 'sell' at 14310 and place a Trailing Stop at a distance of 20 points (14330), set to move up in increments of 5.

The euro weakens against the dollar during the morning, driving our price down to 14251-14252. This is a fall of 59 points. Your Trailing Stop therefore moves by 55 points to 14275.

By midday, the price begins to move against you, but the level of this Trailing Stop stays in place. When the EUR/USD price rises to 14275 your Trailing Stop is activated, closing your position at 14275.

The result

Profit: 35 x £10 per point = £350