> ## Documentation Index
> Fetch the complete documentation index at: https://docs.nilemarkets.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Trading Scenarios

> Three trading strategies with worked examples: EUR/USD hedging for business FX exposure, directional speculation with up to 50x leverage, and carry trades exploiting forward premium/discount.

This page walks through three common trading scenarios on Nile Markets, with concrete parameters and
PnL outcomes. Each example uses the current M2 default parameters: 2% initial margin (50x max
leverage), 1% maintenance margin, 0.05% trading fee.

## Hedging: EUR Payroll Protection

<Tabs>
  <Tab title="The Setup">
    A European SaaS company earns revenue in USD but pays its engineering team in EUR. Monthly
    payroll is approximately EUR 200,000. At the current EUR/USD rate of 1.0800, this costs
    \$216,000. The company wants to lock in this rate for next month's payroll.
  </Tab>

  <Tab title="The Trade">
    <Steps>
      <Step title="Choose parameters">
        * Side: SHORT EUR/USD (selling EUR forward — they need to buy EUR later, so they hedge by
          selling the forward)
        * Tenor: 1 Month (matching the payroll date)
        * Notional: \$216,000 USDC
        * Margin: \$21,600 (10% — conservative leverage of 10x)
      </Step>

      <Step title="Entry">
        * Entry forward price: 1.0813 (spot 1.0800 + small forward premium)
        * Trading fee: \$216,000 × 0.05% = \$108
      </Step>

      <Step title="At maturity — EUR strengthens">
        * Fixing price: 1.0950 (EUR strengthened by \~1.4%)
        * PnL: \$216,000 × (1.0813 - 1.0950) / 1.0 = -\$2,959 loss on forward
        * But: the company's EUR purchase is now cheaper by the same amount in forward terms
        * Net effect: exchange rate exposure neutralized. The company pays a known all-in cost.
      </Step>

      <Step title="At maturity — EUR weakens">
        * Fixing price: 1.0650 (EUR weakened by \~1.4%)
        * PnL: \$216,000 × (1.0813 - 1.0650) / 1.0 = +\$3,521 profit on forward
        * But: the company's EUR purchase costs more on the spot market
        * Net effect: forward profit offsets the higher EUR cost. Same known all-in cost.
      </Step>
    </Steps>

    <Tip>
      The hedge works in both directions — it removes uncertainty. The company trades potential upside
      for certainty, which is exactly what treasury management requires.
    </Tip>
  </Tab>
</Tabs>

## Speculation: ECB Rate Decision Play

<Tabs>
  <Tab title="The Setup">
    A trader expects the ECB to signal a more dovish stance at next week's meeting, which would
    weaken the EUR against USD. They want to profit from this expected move.
  </Tab>

  <Tab title="The Trade">
    <Steps>
      <Step title="Choose parameters">
        * Side: SHORT EUR/USD (betting EUR will weaken)
        * Tenor: 1 Week (covering the ECB meeting)
        * Notional: \$50,000 USDC
        * Margin: \$2,500 (5%, giving 20x leverage)
      </Step>

      <Step title="Entry">
        * Entry forward price: 1.0805
        * Trading fee: \$50,000 × 0.05% = \$25
      </Step>

      <Step title="Scenario A — Correct call (EUR weakens)">
        * Fixing price: 1.0650 (-1.4% move)
        * PnL: \$50,000 × (1.0805 - 1.0650) / 1.0 = +\$775
        * Return on margin: +31.0% in one week
      </Step>

      <Step title="Scenario B — Wrong call (EUR strengthens)">
        * Fixing price: 1.0950 (+1.4% move)
        * PnL: \$50,000 × (1.0805 - 1.0950) / 1.0 = -\$725
        * Return on margin: -29.0%
        * Position equity: \$2,500 - \$725 = \$1,775 (still above MM threshold of \$500)
        * Position survives — no liquidation
      </Step>

      <Step title="Scenario C — Sharp move triggers liquidation">
        * If EUR/USD rises to \~1.1205, equity drops below MM threshold
        * At equity \< \$500 (MM = 1% of \$50,000), position becomes liquidatable
        * Trader loses up to \$2,500 margin (including \$175 in fees: 0.35% of notional)
      </Step>
    </Steps>

    <Warning>
      At 20x leverage, a 5% adverse move would consume your entire margin. Use wider margins or
      shorter tenors to manage liquidation risk around volatile events.
    </Warning>
  </Tab>
</Tabs>

## Carry Trade: Capturing the Forward Basis

<Tabs>
  <Tab title="The Setup">
    When USD interest rates exceed EUR rates, EUR/USD forwards trade at a premium to spot (the
    forward price is higher). A carry trader captures this premium by selling the forward and waiting
    for convergence to spot at maturity.
  </Tab>

  <Tab title="The Trade">
    <Steps>
      <Step title="Identify the opportunity">
        * Spot EUR/USD: 1.0800
        * 1-Month forward: 1.0813 (premium of 13 pips, \~1.5% annualized)
        * The forward premium reflects the USD-EUR interest rate differential
      </Step>

      <Step title="Choose parameters">
        * Side: SHORT EUR/USD (sell the forward at the premium)
        * Tenor: 1 Month
        * Notional: \$100,000 USDC
        * Margin: \$10,000 (10%, conservative)
      </Step>

      <Step title="If spot stays flat">
        * Entry forward: 1.0813
        * Fixing price (spot at maturity): 1.0800
        * PnL: \$100,000 × (1.0813 - 1.0800) / 1.0 = +\$130
        * Trading fee: \$50 × 2 (open + settle) = \$100
        * Net profit: \~\$30 on \$10,000 margin
      </Step>

      <Step title="Reality check">
        * The carry trade profit is small because the forward premium is small
        * EUR/USD can easily move 1-2% in a month, dwarfing the carry
        * This strategy works best when you have a view that spot will stay range-bound
        * Risk: if EUR strengthens significantly, losses exceed the carry premium
      </Step>
    </Steps>

    <Info>
      Carry trades in FX forwards are a professional strategy that works best with large notional
      sizes and when combined with a directional or range-bound market view. The forward premium alone
      is rarely sufficient to justify the directional risk at smaller sizes.
    </Info>
  </Tab>
</Tabs>

## Risk Management Tips

<Columns cols={2}>
  <Card title="Size your margin to your conviction" icon="scale-balanced">
    Lower leverage (more margin) for uncertain outcomes. Higher leverage only when you have high
    conviction and a tight stop-loss plan.
  </Card>

  <Card title="Match tenor to your time horizon" icon="calendar">
    Use 1D for intraday events, 1W for weekly catalysts, 1M for structural positions. Don't use a
    1M tenor for a trade that depends on tomorrow's data release.
  </Card>

  <Card title="Monitor your equity" icon="eye">
    Track position equity relative to the maintenance margin. Add margin before it's too late — you
    can rescue a position by adding margin even when it's liquidatable.
  </Card>

  <Card title="Understand the fixing price" icon="clock">
    Settlement uses the Pyth spot price at 4 PM UTC, not the forward price. A position can be
    profitable on the forward price but settle differently at the fixing.
  </Card>
</Columns>

## Next Steps

<Columns cols={3}>
  <Card title="Margin" icon="shield-halved" href="/protocol/margin-model">
    Deep dive into margin mechanics and leverage
  </Card>

  <Card title="PnL Calculation" icon="calculator" href="/protocol/pnl">
    Exact PnL formulas and worked examples
  </Card>

  <Card title="Quick Start" icon="rocket" href="/build/quick-start">
    Open your first position on Sepolia
  </Card>
</Columns>