Example: Graham Trades EUR/CAD
Graham is a veteran investor who buys and sells currency pairs. Anticipating that the Canadian dollar will increase in value against the euro, Graham secures a contract to purchase CAD$100,000 for €68,000 (reflecting the current EUR/CAD exchange rate of €0.68). Because his forex trading platform charges a 1% margin on every trade, it costs Graham €680 to make this exchange.
Time shows that Graham’s prediction is correct. The Canadian dollar rises to €0.70, so Graham trades $100,000 CAD back for €70,000, which is €2,000 more than he originally had. Once again, Graham is charged a 1% trade fee, which amounts to $1,000 CAD (€700).
In total, Graham gains €2,000 but pays €1,380 in fees, leaving him with a clear profit of €620. In this case, his intuition and expertise has paid off.
* This is a fictional, but realistic, example.