When you are trading internationally, controlling your Foreign Exchange (FX) exposure becomes vital. Failure to do so may result in various consequences, ranging from a decreased profit margin to completely going out of businesses. In this article we are going to explain you how to use a trading calculator to measure and control your FX exposure.
Wait, what is a trading calculator?
It is a tool user by professional traders to calculate the outcomes of entering a trade and preview all of the costs associated with it. The main idea behind it is to achieve a lightning-fast speed, as every second counts when it comes to trading. Nevertheless, the tool can be quite useful for the merchants, travelers and so on.
There are a few trading calculators available and I will be explaining how it works using Admiral Markets trader’s calculator as an example. Let’s dive in.
How does it work?
It is a simple web app. What you have to do is to access the web page first. In general, you can choose between two different account types, but this is not crucial at all unless you are a trader.
Then you will need to select a currency pair from the field “instrument”. Yes, that’s right. In trading, the currencies are traded in pairs, where the first currency is the one you are “buying”, and the second is the one you are paying with. For example, if a currency pair is called EUR/USD and its rate is 1.12345, this means that to get one EUR, a person has to spend 1.12345 USD.
After you have selected an appropriate currency pair, it is now the time to work out the volume. The volume of the deal is described the in the lot field. One lot stands for 100,000 units, meaning that when you are buying 1 lot of EUR/USD, you are purchasing 100,000 EUR for dollars.
Next you will see such fields as Leverage and Account currency. You can actually skip those two as they are mostly related to trading itself. Just for those who are curious, when trading on the currency market, it is possible to trade larger sums than you actually have. Hence, with only 100 USD you can trade up to 50,000 USD.
Then you may select the opening and closing prices. Those would help to determine the results of your FX exposure.
Once you have all of the fields completed, click calculate. The main fields to take a look at are Swap long and Swap short, as those show how profitable or how expensive it is to hedge these currencies.
For example, if you are about to receive 10,000 USD and you want to be sure about the equivalent in AUD you receive, you may sell AUD/USD for 0.1 lot and, if this pair comes with a positive value for Swap short, you will actually be making money every day you hold the currency pair.
