Some firms may charge both a open positions, interest is earned

commission and a mark-up.Firms on the long currency and paid on

may also charge a different mark- the short currency every time the
up for buying the base currency position is rolled over.The inter-
than for selling it.You should read est that is earned or paid is usually
your agreement with the dealer the target interest rate set by the
carefully and be sure you under- central bank of the country that
stand how the firm will charge issued the currency. If the interest
you for your trades. rates of the two countries are
different, then there is usually an
How do I close interest rate differential which
out a trade? will result in a net earning or pay-
ment of interest.This net interest
Retail forex transactions are
is often called the rollover rate. It
normally closed out by entering
is calculated and either added or
into an equal but opposite transac-
deducted from the trader's
tion with the dealer. For example,
account at the rollover time of
if you bought Euros with U.S. dol-
each trading day that the position
lars you would close out the trade
is open. You should check your
by selling Euros for U.S. dollars.
agreement with the dealer to see
This is also called an offsetting or
what, if anything, you must do to
liquidating transaction.
roll a position over and what fees
Most retail forex transactions you will pay for the rollover.
have a settlement date when the
currencies are due to be deliv-
ered. If you want to keep your
position open beyond the settle-
ment date, you must roll the posi-
tion over to the next settlement
date. Some dealers roll open posi-
tions over automatically, while
other dealers may require you to
request the rollover. On most

9
How do I calculate
profits and losses?
When you close out a trade,
you can calculate your profits and
losses using the following formula:

Price (exchange rate) Price when buying

when selling the
base currency
- the base currency X
transaction size
= Profit
or loss

SD) at 1.2178 and sell Euros

Assume you buy Euros (EUR/U
1.2 18 8. If the tra ns ac tio n siz e is 100,000 Euros, you will
at
have a $100 profit.
= $.001 X 100,000 = $100
($1.2188 – $1.2178) X 100,000

R/USD) at 1.2170 and buy Euros

Similarly, if you sell Euros (EU
loss.
at 1.2180, you will have a $100
= – $.001 X 100,000 = – $100
($1.2170 – $1.2180) X 100,000
open
realized profits and losses on
You can also calculate your un
current bid or ask rate for the
positions. Just substitute the
you wil l ta ke wh en clo sin g ou t the position. For example,
action ,
bo ug ht Eu ros at 1.2 178 an d the current bid rate is 1.2173
if you
$50.
you have an unrealized loss of
0
= – $.0005 X 100,000 = – $5
($1.2173 – $1.2178) X 100,000

if you so ld Eu ros at 1.2 170 and the current ask rate is

Similar ly,
profit of $50.
1.2165, you have an unrealized
= $.0005 X 100,000 = $50
($1.2170 – $1.2165) X 100,000

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