If I write an exit strategy using percentages, how are those percentages calculated?
Let’s use an FX example for this, and then a CFD example, as they differ a bit.
FX example - GBP/USD
Let’s say that your exit strategy is “close position at profit of 3% or at loss of 1.5%”. Let’s calculate the profit/limit.
The strategy will close the open trade (“hit”) when that trade reaches a profit equal to 3% of the notional value of the open trade.
Let’s say that for the main trade, we were bullish the GBP/USD and bought a 10k lot at the price of 1.5100. What is the notional value of this trade - how much actual currency did we purchase now?
When we Buy 10k GBP/USD, we are buying £10,000 and selling an equivalent amount of US Dollars. By looking at the quote, we know we had to sell $15,100 to purchase the £10,000. This means the notional trade size is $15,100 worth of currency.
3% of $15,100 is $453 USD.
Therefore, the trigger to close the position at the current BID price will be sent when a profit of $453 is reached.
CFD example - NAS100
Let’s say that your exit strategy is “close position at profit of 0.25% or at loss of 0.25%”. Let’s calculate the profit.
The strategy will send an order to close the open trade (“hit”) when that trade reaches a profit equal to 0.25% of the notional value of the open trade.
Let’s say that for the main trade, we were bullish the NAS100 and bought 100 unit at the price of 7,544.65. What is the notional value of this trade - how much actual currency did we purchase now?
The NAS100 has a pip value of $0.10 per point, therefore when we Buy 100 NAS100, the equivalent amount of US Dollars is 10% of it's price, per unit. This means the notional trade size is $7,544.65 * 100 * 0.1 = $75,446.5 worth of currency.
0.25% of $ 75,446.5 is $188.62 USD.
Therefore, the trigger to close the position at the current BID price will be sent when a profit of $188.62 is reached.
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