An investor deposit \$10,000 in his account.

The account is set to 0.5% margin or 200:1 Leverage. This means that for every \$ 5,000 lot (0.05 MT4 Platform) opened, the investor must maintain at least \$25 in Margin (= \$5,000 x 0.5%) or 5,000/200.

The investor expects the US dollar to rise against the Swiss franc and therefore decides to buy \$ 100,000 of the USD/CHF pair.

The market quotes USDCHF 1.0147-1.0150. The investor buys USD at 1.0150 against CHF.

By doing this, he commits in the simultaneous buying of USD 100,000 (20 lots at \$5,000) and the selling of CHF 101,500 (= \$100,000 x 1.0150) by using \$500 as a Margin (= \$100,000 x 0.5%) and borrowing USD 99,500 from his broker/market maker (= \$100,000-\$500)

Result

 Account Name Credit/Debit Day 1 Comment USD Account C USD +100,000 \$100,000 Investment CHF Account D CHF -101,500 lots (20) x lot value (\$5,000) x USDCHF Quote (1.0150)

Result

 Balance (USD) Equity (USD) Lots Open # Used Margin (USD) Usable Margin (USD) \$10,000 \$10,000 20 \$500 \$9,500

(1) Balance = Deposit (\$10,000) + Sum of Realized Profit & Loss (\$0) = \$10,000

(2) Equity = Balance (\$10,000) + Sum of Unrealized Profit & Loss (\$0) = \$10,000

(3) Lots open = Investment (\$100,000) / Value of one lot (\$5,000) = 20 lots

(4) Used Margin = Lots open (20) x Value of one lot (\$5,000) x Margin (0.5%) = \$500

(5) Usable Margin = Equity (\$10,000) – Used Margin (\$500) = \$9,500

The US dollar has risen and the USD/CHF quote is 1.0300-1.0303.

The investor decides to close out and take profit and enters a sell market order. The order is executed instantaneously and the investor sells 20 lots of USD/CHF at 1.0300.

By doing this, he commits in the simultaneous selling of USD 100,000 (20 lots at \$5,000) and the buying of CHF 103,000 (= \$100,000 x 1.0300).

Result

 Account Name Credit/Debit Day 1 Day 2 Comment USD Account D USD +100,000 USD -100,000 Sell  lots (20) x lot value (\$5,000) CHF Account C CHF -101,500 CHF +103,000 Buy  lots (20) x lot value (\$5,000) x USDCHF Quote (1.0300)

The dollar side of the transaction involves a credit and a debit of USD 100,000, the investor’s USD account will show no change.

The CHF account will show a debit of CHF 101,500 and a credit of CHF 103,000. This results in a profit of CHF 1,500 = approx. USD 1,456 (= CHF 1,500 / 1.0303) which represents a 14.56% profit on the deposit of USD 10,000.

Result

 Balance Equity Lots Open Used Margin Usable Margin \$11,456 \$11,456 0 \$0 \$11,456

(1) Balance = Deposit (\$10,000) + Sum of Realized Profit & Loss (\$ 1,456)= \$11,456

(2) Equity = Balance (\$11,456) + Sum of Unrealized Profit & Loss (\$0) = \$11,456

(3) All positions are closed, therefore, Lots open = 0

(4) Used Margin = Lots open (0) x Value of one lot (\$5,000) x Margin (0.5%) = \$0

(5) Usable Margin = Equity (\$11,456) – Used Margin (\$0) = \$11,456

Note: Overnight rollover: For simplicity’s sake, we have disregarded the effect of difference in interest rate between USD and CHF over the 2-day period which would have marginally altered the profit calculation.