How Trading Works

Forex

When you look at a forex trading screen, you will see a selection of currencies quoted in pairs (e.g. GBP/USD, EUR/GBP) - currencies are always quoted in this way in forex trading, and the values quoted will show you the amount you need to pay of one currency to buy one lot of the other.

When you make a forex trade, you buy one currency while selling the other at the same time, and you can either choose to be in the buy position or sell position. If for example, you think the GBP will appreciate against the USD you would enter in the buy position, and if you think the GBP will depreciate against the USD you would enter in the sell position. Deciding whether you think the currency you want to trade will appreciate or depreciate is the first step in your forex trading approach.

Example 1: Going Long

The GBP/USD is presently trading at 1.53500/1.53550 (sell/buy). This means that the spread is 5 pips.

You believe the GBP will appreciate against the USD and decide to enter into a position for 1 lot (10,000 GBP) at the buy price of 1.53550.

Outcome A: Making a Gain
The market moved in your favour and the GBP/USD is now quoted at 1.53800/1.53850 (sell/buy) so you decide to close the position by selling at the sell price of 1.53800.

The price moved 25 points in your favour, so your total profit is calculated as:

(1.53800-1.53550) × 10,000 units = US$25 (profit)
Outcome B: Making a Loss
The market did not move in your favour and the GBP/USD is now quoted at 1.53100/1.53150 (sell/buy), so you decide to avoid further losses by closing the position by selling at the sell price of 1.53100.

The price moved 45 points against your favour, so your total loss is calculated as:

(1.53100-1.53550) × 10,000 units = US$45 (loss)

Example 2: Going Short

The GBP/USD is presently trading at 1.53500/1.53550 (sell/buy). This means that the spread is 5 pips.

You believe the GBP will depreciate against the USD and decide to enter into a position for 1 lot (10,000 GBP) at the sell price of 1.53500.

Outcome A: Making a Gain
The market moved in your favour and the GBP/USD is now quoted at 1.53100/1.53150 (sell/buy), so you decide to close the position, by selling at the buy price of 1.53150.

The price moved 35 points in your favour, so your total profit is calculated:

(1.53500-1.53150) ×10,000 units = US$35 (profit)
Outcome B: Making a Loss
The market did not move in your favour and the GBP/USD is now quoted at 1.53800/1.53850 (sell/buy) so you decide to avoid further losses by closing the position, by selling at the buy price of 1.53850.

The price moved 35 points against your favour, so your total loss is calculated as:

(1.53500-1.53850) ×10,000 units = US$35 (loss)

Commodities and Indices

As with forex trading, we quote both a "buy" price and a "sell" price for commodities and indices. If you think the price of the asset quoted will increase, you buy (or 'go long') and your profits will increase as the price increases. Alternatively, if you think the price will go down, you sell ('go short'), and your profits will increase as the price falls. The difference between the two quoted prices is known as the "spread", and Z.com Trade is committed to offering competitively tight spreads to minimise your trading costs.

Example 1: Going Long

The price of Gold is presently quoted at 1,318.0/1,318.3 (sell/buy).

You believe that gold will increase in value, so you buy 10 lots (where the value per one lot is 1 unit of Gold) at the buy price of US$1,318.3 This means that for every point gold rises above the buy price you will generate US$1 profit, but lose the same amount for every point gold goes below your buy price of 1,318.3 per one lot.

Outcome A: Making a Gain
The market moved in your favour and gold is now quoted at 1,350.3/1,350.6(sell/buy) so you decide to close the position by selling at the sell price.

The price moved US$32 in your favour, so your total profit is calculated as 10 (the number of lots you bought) x 1 (value per one lot) x 32 (price difference) = US$320
Outcome B: Making a Loss
The market did not move in your favour and gold is now quoted at 1,290.3/1,290.6 (sell/buy), so you decide to avoid further losses by closing the position by selling at the sell price.

The price moved US$28 against your favour, so your total loss is calculated as 10 (the number of lots you bought) x 1 (value per one lot) x 28 (price difference)= US$280

Example 2: Going Short

The UK 100 is presently quoted at 6,500.2/6,501.2 (sell/buy).

You believe that the value of the UK 100 will decrease, so you sell 20 lots at the sell price of 6,500.2. This means that for each lot you sold you will generate profit for every point the buy price falls below the original sell price of 6,500.2, but suffer loss for every point the buy price rises above the original sell price.

Outcome A: Making a Gain
The market moved in your favour and the UK 100 is now quoted at 6,202.2/6,203.2 (sell/buy) so you decide to close the position at the new buy price.

The price moved £297 in your favour, so your total profit is calculated as 20 (the number of lots you sold) x 0.1 (value per one lot) x 297 (price difference) = £594
Outcome B: Making a Loss
The market didn't move in your favour and the UK 100 is now quoted at 6,802.2/6,803.2 (sell/buy) so you decide to avoid further losses by closing the position at the new buy price.

The price moved £303 against your favour, so your total loss is calculated as 20 (the number of lots you sold) x 0.1 (value per one lot) x 303 (price difference)= £606

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Risk Warning
Trading in leveraged products carries a high level of risk. Your losses may exceed your initial investment requiring you to make further payments. These products are not suitable for everyone and you should seek independent advice if you are in any doubt. Please ensure that you fully understand the risks.

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