USD/CHF Trading Example
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.