Direct answer
A worked example of deposit currency explains how the currency you use to fund an account is used for conversions, calculations, and account value. The key idea is that your deposit currency is the “account currency” for balances and margin calculations, while the trading instruments may involve different currencies.
Because exchange rates and costs vary, any worked example must state assumptions clearly. Below is a self-contained scenario with explicit numbers, so you can replicate the arithmetic and see where uncertainty enters.
Mechanism or definition
Deposit currency (account currency) is the currency in which your account deposit and account statements are tracked. When you trade foreign exchange instruments, you may need to convert between:
- the base/quote currencies of the instrument, and
- your deposit currency (account currency).
A worked example typically includes these moving parts:
- Starting balance in deposit currency.
- Exchange-rate conversions needed to map account currency to instrument currency amounts (or the reverse).
- Position outcome expressed in the instrument’s currencies, then converted back to deposit currency.
- Costs such as spreads/fees, which may be charged in specific currencies.
A worked example is not a prediction. It is a transparent “if these rates and costs happen, then these conversions and balances follow” demonstration.
Evidence or example (worked scenario with stated assumptions)
Assumptions (state everything)
- Deposit currency: USD.
- You start with $10,000 account balance in USD.
- You open a trade where the profit/loss is ultimately determined by movement in an FX rate involving another currency.
- To keep the example verifiable, we assume no additional deposits/withdrawals.
- We assume no financing charges (overnight costs) and no extra fees beyond a simple fixed cost.
- We include a simple cost of $20 in USD to represent “trading costs,” but you should replace this with the real cost rules you are comparing.
- Exchange-rate assumptions at entry and exit:
- USD/EUR at entry: 1 USD = 0.90 EUR.
- USD/EUR at exit: 1 USD = 0.92 EUR.
Interpretation: EUR per USD increases from 0.90 to 0.92, meaning the USD weakens vs EUR.
Scenario
Assume the position is structured so that you benefit from EUR strengthening relative to USD. For a simple numerical mapping, we define an instrument exposure in EUR terms:
- Assume the trade’s effective exposure is +1,000 EUR.
- Under the assumptions, the EUR value increases relative to USD because 1 USD buys fewer EUR at entry.
Step-by-step conversion
1) Entry conversion (for understanding exposure value in USD)
- At entry: 1 USD = 0.90 EUR ⇒ 1 EUR = 1/0.90 USD ≈ 1.1111 USD.
- Exposure value in USD at entry: 1,000 EUR × 1.1111 USD/EUR ≈ $1,111.11.
2) Exit conversion
- At exit: 1 USD = 0.92 EUR ⇒ 1 EUR = 1/0.92 USD ≈ 1.086956 USD.
- Exposure value in USD at exit: 1,000 EUR × 1.086956 USD/EUR ≈ $1,086.96.
In this numeric setup, the USD value of the EUR exposure decreases from about $1,111.11 to about $1,086.96.
3) Profit or loss mapping
- The change in USD value is approximately: $1,086.96 − $1,111.11 = −$24.15.
- Add the assumed trading cost of $20.
- Net effect on the account (ignoring margin mechanics and other charges) would be approximately: −$44.15.
4) Updated balance in deposit currency
- Starting $10,000 + (−$44.15) ≈ $9,955.85.
Why this example matters
This demonstration shows how deposit currency (USD) determines the language of account value, while exchange-rate assumptions control the conversion outcomes. If you changed the direction of exposure (for example, −1,000 EUR instead of +1,000 EUR), the sign would flip.
Limitations and risks (material failure modes)
- Incorrect or inconsistent assumptions: If your entry/exit exchange rates are not applied consistently (for example, mixing conventions like EUR per USD vs USD per EUR), the worked arithmetic becomes invalid. 2. Ignoring costs and timing: Real trading involves spreads/fees and sometimes financing/overnight effects. Even small differences can change final deposit-currency results. 3. Margin and leverage effects: Deposit currency interacts with margin requirements and liquidation or margin calls. A worked example that ignores these mechanics can mislead you about what happens during adverse moves. 4.