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P/L and Settlement Mechanism

Spot Margin Foreign Exchange (Forex/FOREX) is an agreement entered into to buy one currency with another (by selling) at an agreed rate.

The main objective is to achieve profits, which is to have currency appreciation for the currency bought, and currency depreciation for the currency sold.

For Forex contracts, the profit and loss will be calculated according to the P/L formula before the position is closed.


P/L 

1. For a long position: P/L = (Bid Price - Cost Price) * Position Size* Contract Multiplier

2. For a short position: P/L = (Cost Price - Ask Price) * Position Size * Contract Multiplier

3. If your quote currency is not USD, your profit (denominated in the quote currency) needs be converted to USD at the real-time exchange rate before settlement.

E.g.

If you open a short position in one USD/CNH contract at the cost price of 6.95585, and close it at the price of 6.94482:

Realized P/L =  (6.95585 - 6.94482) * 100,000 * 1 = 1103 CNH

Since the quote currency is CNH, instead of USD, your profit (denominated in CNH) needs to be converted to USD at the real-time exchange rate. So your Realized P/L is 1103 CNH / 6.94482 = 158.82 USD.


Settlement Date

The settlement date for leveraged forex is two business days after the execution date (T+2). It means a leveraged forex contract executed today (T0) will settle after the market close on the second business day (T+2).

Say, if T0 is Monday, the contract will settle after the market close on Wednesday; if T0 is Thursday, it will settle after the market close next Monday.