Trader x has an account of USD 50'000.
He buys EUR/USD 500'000 at 1.4000 at the market and places a stop loss order at 1.3960.
At this point his maximum risk is USD 7'000 and his margin utilization is 14%, well above the minimum.
During the day the Forex market fluctuates and initially moves down to 1.3980.
At this point trader x has an unrealized loss of USD 1'000 and his margin utilization has risen to 16 % reflecting the effect of the downward move on his margin capacity.
Later still the price moves back up to 1.4080 and trader x decides to take profit. He sells at 1.4080 making a USD 4'000 profit which represents a 8 % return on his account value. Note that trader x took only a risk of USD 7'000 and made a return of USD 4'000 this equates to a risk/reward ratio of 0.57. 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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