Please explain the impact of local currency fluctuation in trading!

Beginner Questions
1

Hi Everyone,

Newbie here! First question on babypips!

So I have a CAD denominated account and I shorted 25 units of WTI crude yesterday at $53.7. It fell 3% today and is trading at $52. My account shows a notional profit of $50 (not closing the trade yet).

I understand that WTI crude is quoted in USD. So by buying 25 units of WTi crude, I have exposure to USD. Yesterday USD/CAD was 1.321 and today it’s up 80-90 pips at 1.330.

Now here’s what troubling me - CAD lost 0.7% against USD between the time I opened the trade and right now. Where’s the impact of this loss (since my account is denominated in CAD and Crude is USD based) in my trade? The notional profit of $50 does not include this.

Does the change in local currency affect the trade value ($1,342 USD) or the profit ($50) in this case?

Edit 1 - Essentially my question is based on the impact of the change in value of the local currency, when it is not involved in the instrument I am trading. Say I trade USD/GBP and in the mean time CAD loses or gains 2%, what will the impact of this 2% be? Will there be no impact/ 2% on trade value/ 2% on the profit or loss?

Am I missing something?

Thanks,
Rahul

2

The change in the USD/CAD exchange rate will apply to your USD profit ($50 in this example).

This example is similar to your first example.

The pair is GBP/USD (not USD/GBP) by the way.

If you earn, say, 100 pips trading the GBP/USD pair, your profit will initially be in USD, because USD is the quote currency in this pair. The CAD equivalent of that USD profit will be calculated (internally by your trading platform) using the USD/CAD exchange rate in effect at the time your position is closed, and that CAD figure will be posted to your account.

1 Like
3

I’m also waiting for answers from the other. might help to solve this problem.

4

That was very helpful and certainly cleared my doubt. Thanks a ton!