Trader x has an account of USD 50'000.
He buys EUR/USD 500'000 @ 0.9400 at the market and places
a stop loss order at 0.9360.
At this point his maximum risk is USD 2'000 and his margin
utilisation is 10.68%, well above the minimum.
During the day the market fluctuates and initially moves
down to 0.9380.
At this point trader x has an unrealised loss of USD 1'000
and his margin utilisation has fallen to 10.47% reflecting
the effect of the downward move on his margin capacity.
Later still the price moves back up to 0.9450 and trader
x decides to take profit. He sells at 0.9450 making a USD
2'500 profit which represents a 5% return on his account
value. Note that trader x took only a risk of USD 2'000
and made a return of USD 2'500 this equates to a risk/reward
ratio of 1.25. A high risk reward ratio is what every trader
should be aiming for.
The viewer should note that the example above is a random
case scenario and in no way is meant to allude that the
potential for profit is greater than the potential for loss
in foreign exchange trading.
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