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The current bid/ask price for USD/CHF is 1.6322/1.6327,
meaning you can buy $1 US for 1.6327 Swiss Francs or sell $1
US for 1.6322.
Suppose you
decide that the US Dollar (USD) is undervalued against the
Swiss Franc (CHF). To execute this strategy, you would buy
Dollars (simultaneously selling Francs), and then wait for
the exchange rate to rise.
So you make
the trade: purchasing US$100,000 and selling 163,270 Francs.
(Remember, at 1% margin, your initial margin deposit would
be $1,000.)
As you
expected, USD/CHF rises to 1.6435/40. You can now sell $1 US
for 1.6435 Francs or buy $1 US for 1.6440 Francs.
Since you're
long dollars (and are short francs), you must now sell
dollars and buy back the francs to realize any profit.
You sell
US$100,000 at the current USD/CHF rate of 1.6435, and
receive 164,350 CHF. Since you originally sold (paid)
163,270 CHF, your profit is 1080 CHF.
To calculate
your P&L in terms of US dollars, simply divide 1080 by the
current USD/CHF rate of 1.6435.
ANCO FX is compensated for its services through the spread between the bid and ask prices
and/or on the overall volume of trades. Firms that introduce customers to ANCO FX may charge
commissions for their services or be compensated through the bid and ask spread.
Total
profit = US $657.14
Conversly, using this same example, if the USD/CHF had
fallen (the USD weakened) by the same amount you had
expected it to rise, as you had not expected, and, you had
not limited your loss by offsetting the position earlier, or
by using a judicious stop, on this example, your loss would
had been (-US$657.13) |
