Example of Profiting on a Forex Tradeby InvestorGuide Staff
Let's assume that a major mishap occurs at an oil refinery in the Middle East - essentially, oil prices will rise. A savvy FX investor knows that Canada is a net exporter of oil while the U.S. receives half of its supply from foreign producers. Rising oil prices would benefit Canada while hurting the U.S. In the USD/CAN currency exchange, that means that 10,000 U.S. dollars would buy fewer Canadian dollars. Therefore, the savvy FX trader would realize that the short position would be best because he/she would be betting on the USD losing ground to the CAN in the exchange rate. If the investor believed that the USD would gain ground and increase in value relative to the CAN, he would choose the long position instead.