Short position example (selling position)
Detailed description
Your basic account currency is EUR, with an amount of 1,000 EUR, and you would like to sell 100,000 (a full lot) of the pair USD/JPY (selling USD against JPY).
Step 1
You decide to sell the pair at the following rates:
USD/JPY 110.00/110.03
EUR/USD 1.4000/1.4003
NOTE: We will use the EUR/USD rate to transform the trade currency into your euro account base currency.
Using a leverage of 100:1, you are able to sell USD 100,000 USD/JPY, selling USD 100,000 and buying JPY 11,000,000 (100,000 x 110.00). The 1,000 USD translates into EUR 714.29 (1,000 USD / 1.4000), which is margin to cover your position. You are left with a EUR 285.71 balance in your account. Now you have an open short position.
Step 2
When you buy the pair, the rates are:
USD/JPY 109.20/109.23
EUR/USD 1.4006/1.4009
You buy USD at 109.23 (ask price), for a total of 100,704.93 USD (11,000,000 JPY / 109.23). Your profit is 704.93 USD (= 100,704.93 – 100,000), i.e. 503.20 EUR (704.93 USD / 1.4009). Your account now contains 1,503.20 EUR (1,000.00 initial account’s amount + 503.20 profit).
You made a 70% (100 x 503.20 / 714.29) profit in a day.
Short summary
Step 1
When you sell the pair the rate is:
USD/JPY 110.00/110.03
You sell 100,000 USD against JPY at 110.00.
Step 2
When you buy the pair, the rate is:
USD/JPY 109.20/109.23
You buy USD at 109.23. The difference between the selling and buying price is 110.00 – 109.23 = 0.77 JPY: this is your profit for each USD invested, for a total of 100,000 USD x 0.77 JPY = 77,000 JPY, or 503.20 EUR, as explained above.