Closing Option Positions Before Expiration Day
Retail forex transactions are normally closed out by entering into an equal but opposite transaction with the dealer. For example, if you bought Euros with U.S. dollars, you would close out the trade by selling Euros for U.S.
This is also called an offsetting or liquidating transaction. Most retail forex transactions have a settlement date when the currencies are due to be delivered.
If you want to keep your position open beyond the settlement date, you must roll the position over to the next settlement date. Some dealers roll open positions over automatically, while other dealers may require you to request the rollover.
Most dealers charge a rollover fee based upon the interest rate differential between the two currencies in the pair. You should check your agreement with the dealer to see what, if anything, you must do to roll a position over and what fees you will pay for the rollover.
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) when selling the base currency – price when buying the base currency X transaction size = profit or loss Assume you buy Euros (EUR/USD) at 1.2178 and sell Euros at 1.2188.
If the transaction size is 100,000 Euros, you will have a $100 profit. ($1.2188 – $1.2178) X 100,000 = $.001 X 100,000 = $100.
Similarly, if you sell Euros (EUR/USD) at 1.2170 and buy Eurosat 1.2180, you will have a $100 loss. ($1.2170 – $1.2180) X 100,000 = – $.001 X 100,000 = – $100 You can also calculate your unrealized profits and losses on open positions. Just substitute the current bid or ask rate for the action you will take when closing out the position.
For example, if you bought Euros at 1.2178 and the current bid rate is 1.2173, you have an unrealized loss of $50.($1.2173 – $1.2178) X 100,000 = – $.0005 X 100,000 = – $50 Similarly, if you sold Euros at 1.2170 and the current ask rate is 1.2165, you have an unrealized profit of $50.($1.2170 – $1.2165) X 100,000 = $.0005 X 100,000 = $50 If the quote currency is not in US dollars, you will have to convert the profit or loss to US dollars at the dealer’s rate.
Further, if the dealer charges commissions or other fees, you must subtract those commissions and fees from your profits and add them to your losses to determine your true profits and losses.
How much money do I need to trade forex?
Forex dealers can set their own minimum account sizes, so you will have to ask the dealer how much money you must put up to begin trading. Most dealers will also require you to have a certain amount of money in your account for each transaction.
This security deposit, sometimes called margin, is a percentage of the transaction value and may be different for different currencies. A security deposit acts as a performance bond and is not a down payment or partial payment for the transaction.
Dealers who are regulated by NFA are required to calculate and collect security deposits that equal or exceed the percentage set by NFA rules. Although the percentage of the security deposit remainsconstant, the dollar amount of the security deposit will change with changes in the value of the currency being traded.