I have looked through the FAQs and haven’t found this question yet. I am fairly new to forex and still learning the ropes. I have two $10000 shorts in the eurusd. One is up $89 and the other is down $265. Can I fill the one that is up and capture the profit on it, or are the two lots tied together at the averaged cost basis? Thanks to anyone who can help.
Dutch
It depends. Is your broker FIFO? In that case you have to close out trades by closing the newest first and the oldest last. If not FIFO you should be able to close any trade you wish and leave the other open.
Best answer you will always get by asking your brokers support.
It’s better to choose the broker where you can always close any trade at your own will anytime. Or else it wil create panic when you see a trade is going in loss and you cannot close it. So choose the broker wisely and have a great trading.
Hi Dutch,
Most forex trading platforms will let you close these two trades in the order you choose (unless you are a US resident trading with a US-regulated broker, in which case, the older EUR/USD trade must be closed first to comply with FIFO regulations). However, it’s important you understand why it does not matter which trade you close first, because your equity and net exposure are the same with either scenario.
Suppose, you started with $10,000 in your trading account. Your balance is the money in your account not factoring in open positions. Your equity is the money in your account taking into account floating profits or losses on open positions. Only your equity matters, because this is the money you could withdraw if you closed out all your open positions at the current market price.
Scenario 1: You close the trade with an $89 profit, and keep the trade with a $265 loss open. While your balance increases to $10,089, your equity (which is what matters) is $9824 (balance minus floating loss). Your net exposure in the market is short 10K EUR/USD which means you are risking $1 per pip. The EUR/USD rate would have to drop 176 pips for your equity to get back to $10,000.
Scenario 2. You close the trade with a $265 loss, and keep the trade with an $89 profit open. While your balance decreases to $9,735, your equity (which is what matters) is $9824 (balance plus floating profit). Your net exposure in the market is short 10K EUR/USD which means you are risking $1 per pip. The EUR/USD rate would have to drop 176 pips for your equity to get back to $10,000.
Since your equity and net exposure (and therefore the amount the EUR/USD rate has to move to get you back to break even) are the same, it doesn’t matter which of the two EUR/USD trades you close first, since they are both the same size.