Learning how FX work - Example

Even for newbie this concept is most easily explained and understood through an example of an actual trade:

Trader X wishes to speculate on GBP/USD. Believing that the GBP will rise against USD or the exchange rate will move upwards then X places an order to BUY GBP/USD at a market rate 1.8455. In terms of volume, X speculating on 100,000 units of the base currency, which is the standard lot size or trading increment used in the forex market. Since the base currency is the first currency in the pair, we know that the market cost for 1 GBP was a.8455 USD, hence 100,000 pounds cost $184,550 (1.8455 * 100,000) that borrowed amount of 184,550 USD must be paid back when transaction is closed. And X is speculating on the value 100,000 British Pound with respect to US dollar

Let’s assume X is correct assuming that the exchange rate moved to 1.8555. It means 100 pips above the rate at which trader X entered. If X closed his positions now, the 100,000 pounds he purchased at the onset of the transaction would be sold and his debt of 184,550 dollars would be paid off

Summary of the transactions is as follows:

Initial transaction:
Purchase of 100,000 pounds at a cost of 1.8455 US dollars per pound = 184,550 USD
Final transaction:
Sale of 100,000 pounds at a price 1.8555 US Dollars per pound = 185.550 USD

Amount of pounds initially purchased: 100,000
Amount of pounds sold through the closing transaction: 100,000
Net number of pounds: 0

Amount of Dollars initially borrowed: 184,550
Amount of dollars purchased upon close of trade: 185,550
Dollars remaining after borrowed dollars are paid off: 1,000