I had been well answerd by member Clint. My question is related to the risk amount adjustment related to the traded pair. Is it the same adjustment for a long and short position ?
So this one is to complete my interogation on risk caculation in relation to actual account currency value
Account currency value : AUD$
Caculated risk : 500 AUD$
Plan transaction Sell EUR/GBP
Pip risked 45
Selling the pair, i will get GBP£ in my account
As per Member Clint info; Risk$ will be adjust to
(( Risk AUD$) / GBP/AUD value)
It will be the same. Here’s an example or a short and long position:
This is how it works regardless of the denomination of your account.
[U]Example 1.[/U]
Buy 10,000 EUR/GBP. You are exchanging X GBP at the current exchange rate for 10,000 EUR. Assuming the current buy price is 0.8953, you buy 8,953 GBP for 10,000 EUR. If the sell price goes to 0.8954, you can sell your 10,000 EUR for 8,954 GBP. Your profit was 1 GBP (8,954 - 8,953). Exchange back into AUD at the current GBP/AUD rate to get your profit in AUD.
[U]Example 2.[/U]
Sell 10,000 EUR/GBP. You are exchanging 10,000 EUR at the current exchagne rate for X GBP. Assuming the current sell price is 0.8953, you sell 10,000 EUR for 8,953 GBP. If the buy price drops to 0.8952, you can then re-purchase the 10,000 EUR for 8,952 GBP. You made 1 GBP on that trade (8,953 - 8,952). Exchange back into AUD at the current GBP/AUD rate to get your profit in AUD.
So in both cases, your are left with GBP. If your account is denominated in AUD, your profit has to be converted back to AUD at the current GBP/AUD rate. In other words, this is the [U]pip value[/U]. The pip value will fluctuate since your profit has to be converted back into the currency your account is denominated in.
If your account were denominated in GBP, then the pip value for EUR/GBP would always be equal to 1 GBP (when trading 10,000). Same as if your account is denominated in USD, then pairs such as EUR/USD, GBP/USD, NZD/USD, and AUD/USD will have a constant pip value.
Key points to take away. Your profit on the trade is always denominated in counter-currency. If your account is denominated in that currency as well then there is no pip value risk. If your account is not denominated in that currency, pip values will fluctuate due to the exchange rate itself fluctuating.