Imagine that you sold $100 worth of EUR/USD with a leverage of 1:100 at the exchange
rate of 1.5558.
The details of your trade are:
|
EUR/USD |
1.5558 |
|
Investment
|
$100 |
|
Leverage
|
x100 |
In plain English, what you've just done is sold (100X100=) 10,000 USD worth of EUR.
Now, less than an hour later, the EUR/USD rate has decreased to 1.5533. (A minor
change of -0.15%)
The difference between the open and close rates is 25 points. (1.5558-1.5533=0.0025)
In the EUR/USD each point represent 1 USD which bring us to a profit of 25$ over
this short-term small-size trade.
|
EUR/USD (Sell)
|
1.5558 |
|
EUR/USD (Buy)
|
1.5533 |
|
Difference
|
0.0025 |
|
Points
|
25 |
|
Profit
|
$25 |
This means that this seemingly insignificant fluctuation in the rate allows you
to cash in $25 from an initial investment of $100.
In other words you just made 25% profit on your investment, thanks to 0.15% movement
in the pair's rate.
On the example trade that we've just seen, your risk was limited to the initial
investment and your reward was unlimited, which is good if you are very certain
regarding your decisions. However, as a beginner you shouldn't trust yourself too
much, as you are bound to make mistakes. By learning about special trade order features,
you will be able to hedge your risks.