At 11 a.m. the US dollar rate to the Swiss franc was USD/CHF 1.6217 - 1.6222. If you believe that the Swiss franc at present is undervalued against the US dollar, and the rate USD/CHF is going to move down, you order to sell 100,000 US dollars for 162,170 (100,000*1.6217) Swiss francs.
From there, you have two options:
1. At 3 p.m. your forecast came true and the USD/CHF rate changed to 1.6049/1.6054. You can close the position by offsetting mutual obligations and buy 100,000 US dollars for 160,540 Swiss francs. After such transaction, the US dollar liabilities on your balance are equal to zero (-100,000 + 100,000 = 0), and your profit is 1,630 Swiss francs (+162,170 – 160,540 = 1,630), or roughly 1,015 US dollars. This is a profit you earned from the transaction.
2. At 3 p.m. the USD/CHF rate changed up to 1.6283/1.6288 contrary to your forecast. You can decide to close the position by offsetting mutual debts and to buy 100,000 US dollars for 162,880 Swiss francs. After this transaction, the US dollar liabilities on your balance are equal to zero (-100,000 + 100,000 = 0), and your loss is -710 Swiss francs (+162,170-162,880 = - 710), or roughly –436 US dollars. That is, you owe 436 US dollars and it is deducted from your account. This is your loss from the transaction.
Overall, to make easier computations a following rule can be applied: value of one pip in the transaction worth 100,000 units of the base currency (that on the left side of the currency pair) is equal to 10 units of the counter-currency (that on the right side of the currency pair). Say, in a buy transaction worth 100,000 USD/CHF one pip values 10 CHF; in a sell transaction worth 100’000 EUR/USD one pip values 10 USD, and so on. Once the transaction is completed, profit or loss denominated in the second currency is immediately transferred to US dollars at the current market rate.
