In your business plan, section following your accounting reports should be your MD&A. Your Management Discussion and Analysis (MD&A) is your explanation of why investor's money will quickly lead to cash flow or increased cash flow and profits. It should show how potential investment would result in increased retained earnings, a stronger balance sheet and greater corporate assets. Your goal is to specifically tie potential investment to your two accounting reports.

Two examples may make my point about MD&A. Let's say you have five production lines making widgets. You have a 20% backlog of widget orders. A production line costs $200,000. It is easy to explain in MD&A, citing your reports, that putting in a sixth production line will allow you to meet your existing demand for widgets. Or, lets say that your company is a startup REIT (Real Estate Investment Trust). Your business plan is to buy failed vacation apartment buildings along Cancun coast and covert them into retirement condos. Your reports will show negative cashflow from present apartment operation. Let's say that your plan is to convert first apartment complex into twenty beachfront condos and ten upgraded vacation apartments. Your MD&A shows that using $200,000 of potential investor's money, you will convert four of apartments. You will sell them for a given amount of money, while continuing to operate vacation apartment complex. You'll use profit from sale to buy next failing vacation apartment complex and so on. By reducing your available vacation apartments by 13%, you should increase occupancy on remaining apartments by same 13% and thus improve your P&L Statement. You will acquire another building complex and increase your corporate assets.

Sadly, credible numbers are not necessarily real numbers. As well publicized corporate failures like Enron and World.Com prove, numbers are often created. Auditors are human and subject to temptation. There are serious gaps in Generally Accepted Accounting Principles (GAAP). Relying on unaudited financial statements is risky, if investor fails to do some due diligence about fund seekers honesty and competence. However, accounting reports are a far better source of business plan numbers than illusion of cashflow projections.

So, since you believe that market price for EUR/USD pair will go higher, you will enter a *buy position* in market. For simplicities sake, let's say you bought one lot at 1.3245. As long as you sell back pair at a higher price, then you make money.

But, no worries. This seemingly elaborate process is handled, and even calculated for you, via broker's software mentioned above. The chart software and quote board are in agreement with all sides of currencies.

To illustrate a typical FX SELL trade, consider this scenario involving USD/JPY currency pair:

REMEMBER ~ Selling ("going short") currency pair implies selling first, base currency, and buying second, quote currency. You sell currency pair if you believe base currency (USD) will go down relative to quote currency (JPY), or equivalently, that quote currency (JPY) will go up relative to base currency (USD).

NOTE: while Profit Calculations, on Short-sell trade scenario below, may seem somewhat complicated if you've never been in FOREX market before, trust us when we say, "this process is nearly seamless through your broker trade station (software). We're just showing you this thought- process below so you can SEE how a PROFIT occurs even when SELLING a currency pair.

The current bid/ask price for USD/JPY is 105.26/105.30, meaning you can buy $1 US for 105.30 Japanese YEN or sell $1 US for 105.26 YEN.

Suppose you decide that US Dollar (USD) is overvalued against YEN (JPY). To execute this strategy, you would sell Dollars (simultaneously buying YEN), and then wait for exchange rate to rise.

So you make trade: selling US $100,000 and purchasing 10,526,000 YEN. (Remember, at 1% margin, your initial margin deposit would be $1,000.)

As you expected, USD/JPY falls to 104.26/104.30, meaning you can now buy $1 US for $104.30 Japanese YEN or sell $1 US for 104.26

Since you're short dollars (and are long YEN), you must now buy dollars and sell back YEN to realize any profit.

You buy US $100,000 at current USD/JPY rate of 104.30, and receive 10,430,000 YEN. Since you originally bought (paid for) 10,526,000 YEN, your profit is 96,000 YEN.

To calculate your P&L in terms of US dollars, simply divide 96,000 by current USD/JPY rate of 104.30.

Total profit = US $920.42

Adrian Pablo, FOREX Trader and Freelance Writer.

 http://www.1-forex.com