The AUD/USD rate is quoted at '0.7500/02'. This quote represents the bid/offer spread for AUD vs. USD. The offer rate of 0.7502 is the rate at which you can purchase AUD (or BUY AUD and SELL USD). The bid rate of 0.7500 is the rate at which you can Sell AUD to buy USD.
Opening position
You believe that the Australian Dollar will strengthen against the US Dollar, and decide to BUY or 'go long' A$100,000 @ 0.7502 (the offer price).
| Quote (bid/offer) | 0.7500/02 |
| Buy Price | 0.7502 |
| Volume | A$100,000 |
| Initial outlay (using 1% margin) | A$1,000 |
In the example above you have purchased A$100,000. But because FX is traded on margin with CMC Markets you will only need A$1,000 (1%) to maintain the same market exposure.
The risk on this AUD/USD trade is equivalent to US$10 per each point movement. Each point is valued at 0.0001. For example if the AUD/USD rate moves from 0.7502 to 0.7503 you will receive a profit of US$10.
Your prediction is correct and the Australian Dollar appreciates against the US Dollar. The quote on AUD/USD is now 0.7590/92.
Closing position
To close your position, you decide to SELL A$100,000 @ 0.7590 (the bid price).
| Quote (bid/offer) | 0.7590/92 |
| Sell price | 0.7590 |
| Volume | A$100,000 |
| Profit/loss | US$880 profit |
Your profit and loss is usually calculated in the secondary currency. Therefore the above AUD/USD trade profit/loss is calculated in US Dollars. You will only be charged a financing cost if you hold your position overnight.
Profit/loss Calculation:Size of trade x (sell price - buy price) = profit & loss USD 100,000 x (0.7590 - 0.7504) = US$880 profit Or, converting the US$880 back to A$ at a rate of 0.7590 (Profit/loss ÷ AUD rate) = profit & loss AUD (860 ÷ 0.7590) = A$1,159.42 profit |
By closing your position you realise a gross profit of A$1,159.42.
If you anticipated incorrectly and sold AUD at 0.7500 and later bought AUD at 0.7592, a loss of US$920 would have been experienced.
