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Risk Warning
The Prime Markets foreign exchange service offers a highly competitive solution for all your FOREX trading requirements.
The objective of currency trading is to exchange one currency for another in the expectation that the market rate or price will change so that the currency you bought has increased its value relative to the one you sold. If you have bought a currency and the price appreciates in value, the trader must sell the currency back in order to close the position, and hopefully to realise the profit.
Spot FX and FX CFDs are traded on margin. With margin trading, as with other CFDs, you do not have to pay the full value of the transaction, instead you put up a deposit (margin). The margin required will depend on the liquidity of the particular currency pair.
Your open positions are valued real-time and any margin calls are made during a 24-hour trading day.
FOREX contracts (Rolling Spot Contracts) have no settlement period and you can keep the position open indefinitely, providing there is enough margin in your account to support the position.
Below is an example of a CFD Foreign Exchange (FOREX) trade:
The Spread: Imagine the USD/JPY rate is quoted at '78.00/03'. This quote represents the bid/offer spread for USD vs JPY that in this case would be 0.03.
The Offer: The offer rate of 78.03 is the rate at which you can buy USD to sell JPY
The Bid: The bid rate of 78.00 is the rate at which you can Sell USD to buy JPY
Going Long: You believe that the US Dollar will strengthen against the Japanese Yen, and decide to BUY or 'go long' USD 500,000 @ 78.03 (the offer price).
Opening Buy: Customer BUYS USD 500,000 @ 78.03.
| Quote (bid/offer) | 78.00/03 |
| Buy price | 78.03 |
| Volume | USD 500,000 |
| Initial outlay (using 1% margin) | USD 5,000 |
Later: Your prediction is correct and the US Dollar appreciates against the Japanese Yen. The quote on USD/JPY is now 78.65/68. To close your position, you decide to SELL USD 500,000 @ 78.65 (bid price).
Closing Sell: Customer SELLS USD 500,000 @ 78.65
| Quote (bid/offer) | 78.65/68 |
| Sell price | 78.65 |
| Volume | USD 500,000 |
| Initial outlay (using 1% margin) | USD 5,000 |
Profit/Loss Calculation:
Size of trade x (sell price - buy price) = JPY profit or loss
500,000 x (78.65 - 78.03) = JPY 310,000 profit
Or, converting the JPY 310,000 back to USD at a rate of 78.65
(Profit/loss ÷ USD rate) = USD profit or loss
(310,000 ÷ 78.65) = USD 3,941.51 profit
By closing your position to realise a net profit of USD 3,941.51
This is obviously a favourable outcome, had the price moved against you would have incurred an equivalent loss. Prime Markets strongly recommend the use of stop losses on every trade to mitigate potential downside.
For further information on FOREX Trading please call the trading desk on +44 (0) 20 7220 4300
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Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily a guide to future performance. Trading in these markets is generally considered to be suitable only for the more experienced investor as it carries a high degree of risk. An investor may not receive back the amount of their original investment and in certain circumstances may be liable for a sum that is greater than their original investment. If in any doubt, please seek independent financial advice.