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Mr Chan has US$100,000 in a currency management account and expects the USD exchange rate against JPY to trend upwards.
Open an FX trading account, with a margin line equivalent to 15 times the initial cash margin.
Establish a short position to sell JPY and long position to buy USD at the exchange rate of the 115.50, with a cash margin of US$6,667. JPY is sold at US$100,000 equivalent.
Square the position.
|(100,000*120.00) - (100,000*115.50)|
|= JPY12,000,000 – JPY11,550,000|
|(100,000*115.00) - (100,000*115.50)|
|= JPY11,500,000 – JPY11,550,000|
Risk of Investment:
The risk of loss in foreign exchange margin trading can be substantial. Investors may sustain losses in excess of their original margin funds. Placing contingent orders, such as "stop loss" or "stop limit" orders, will not necessarily limit losses to the intended amounts. Market conditions may make it impossible to execute such orders. Investors may be called upon at short notice to deposit additional margin funds. If the required funds are not provided within the prescribed time, their position will be liquidated. Investors will remain liable for any resulting deficit in their account. Investors should therefore carefully consider whether such trading is suitable in the light of their own investment objectives, financial position and risk profile.