Spread Betting | IG Index | Forex | Examples

Buying the euro

This example takes you through a short-term position: 'buying' Spot EUR/USD with a Trailing Stop.

On the morning of 5 February 2009 the EUR/USD price stands at 12837 – 12839.

You believe the euro will rise against the dollar over the short term and decide you will 'buy' $10 per point at the offer price of 12839.

To limit your risk, and without having to monitor the EUR/USD price constantly, you want to use one of our risk management tools. You could place a Stop order to close the position at a less favourable level. This would close you position if the price moved against you. However, if the price moves in your favour this Stop won't lock in profit. A Trailing Stop, however, tracks your profitable positions automatically. In this case, it would track upwards if the EUR/USD price were to rise.

You 'buy' at 12839 and place a Trailing Stop at a distance of 20 points (12819), set to move up in increments of 5.

The euro strengthens against the dollar during the morning, pushing our price to 12880 – 12882. This is an increase of 43 points. Your Trailing Stop therefore increases by 40 points to 12859.

By midday, the price begins to move against you, but the level of this Trailing Stop stays in place. When the EUR/USD price drops to 12859 your Trailing Stop is activated, closing your position at 12859.

The result

Profit: 20 x $10 per point = $200