Now that we know what trade, we have to understand the mechanism of Forex trading.
Transactions made on the Forex market are called positions. Customary to distinguish two types of positions:
Buy position, in English - BUY (read as "bye"), opens in the calculation of the growth of the exchange rate;
Position on the sale, in the English language - SELL (read as "Sally"), opens in the fall based on the exchange rate.
Just note that the purchase is also called a "long position", as noted, that the course is usually long and slowly growing. Conversely, the sale is called a "short position", as the decline in exchange rates are often hard and fast.
So:
- If you are going to rise in the euro against the U.S. dollar, and thus the growth of the euro / dollar, we should take a position on a pair BUY EUR / USD (buy euros for U.S. dollars);
- If you plan to reduce the cost of the euro against the U.S. dollar, and therefore fall in the euro / dollar, we should take a position on a pair SELL EUR / USD (euro sell for U.S. dollars).
The above arguments are equally valid for all currency pairs. Thus, the trader can work in two ways - earn as you rise and fall in the exchange rate. So you finally secured the decision tree, look at the picture presented by:
For now, let us remember that the value of the exchange rate declared by the seller or buyer, willing to make a deal at this point in time, called the quote currency. In addition, for each currency pair is always presented two quotes:
ASK (Ask or Offer) - the price at which the trader can buy the base currency broker;
bid (Bid or Last) - the price at which the trader can sell the base currency broker.
Take a look at the typical presentation of quotations:
Now we see that the EUR / USD = 1.2484/86 (a shorthand Bid and Ask are also often used.) This means that a trader can buy euros for U.S. dollars at a price of Ask = 1.2486 or may sell euros for U.S. dollars at a price of Bid = 1.2484.
Please note that the sale price (bid) is always less than the purchase price (Ask). The difference between the purchase and sale of call spread - a traditional commission for the transaction in any financial market, more familiar to us by foreign currency exchange. Spread may be either fixed (permanent) or floating, that is a little change over time. Value spread is usually due to liquid currency pairs (trading activity) and internal conditions of a broker. In general, at any time, the spread is as follows:
Spread = Ask - Bid
Accordingly, the spread in this case is 1.2486 - 1.2484 = 0.0002 or 2 points. Point or pips (Point, Pips) is called the minimum step change in the exchange rate. Thus, the currency pair EUR / USD quote change at one point corresponds to a change in the unit of the last quarter of the value of the decimal point. For example, changing from 1.2401 to 1.2402, or 1.2485 to 1.2486, etc. Quote change by 100 points is called a great figure.
Traditionally, almost all currency pairs (EUR / USD, GBP / USD, USD / CHF, etc.) corresponds to one point ten-thousandth of quotes, ie 0.0001, and the only course of USD / JPY and the cross rates with the Japanese yen - a hundredth of a, ie 0.01. But today, many brokers try to exact quotation, so do not be surprised if you see the kind of quotes 1.24849 for EUR / USD or 89,948 for USD / JPY. Naturally, in this case, one item will fit 0.00001 and 0.001 share quotes.
Any transaction in our lives a stipulated amount of money, whether it is a common purchase in a store or a contract for the supply of the car car parts. And to trade in the Forex market in the transaction necessarily determine its size. But rather a contract size of the standard units - lots. In the forex market it is assumed that:
1 lot corresponds to 100,000 of the base currency
Recall that the base currency is the one which is the first in the currency pair. It turns out that when a trader opens a position in one lot at a euro / dollar (EUR / USD), then the size of the contract - 100 000, but if he takes a position in one lot at a pair dollar / franc (USD / CHF), the size of the contract will be 100,000 dollars. At the same time, not necessarily to start trading in the Forex market such large amounts - the size of the transaction can be expressed in partial (fractional) lot. For example:
0.05 of the lot is 5000 base currency
0.2 lot = 20,000 BV,
2.3 lot = 230,000 BV
5 lots = 500,000 BV etc.
It is important to understand what determines the size of the contract or the profit potential losses in a particular transaction (s) is, as it determines the value of one point when the quotes. Initially, the point value is always expressed in the quoted currency (the one which is in second place in the currency pair). A formula for the calculation is as follows:
cost of the item in the quoted currency = item * share points
So, if a position in one lot at a pair of EUR / USD, then the cost of the item = 100 000 * 0.0001 = 10 USD (as the dollar - quote currency). But if the volume reduced to 0.05 lot, the cost of the item will be the 5000 * 0.0001 = 0.5 USD. Thus, the profit (or loss) for a certain number of points in the position will vary in proportion to lot.
If the position of 1 lot is opened (or will open) for the pair EUR / JPY, then the cost of the item = 100 000 * 0.01 = 1,000 JPY (Yen as quote currency). And to convert yen into dollars, is divided by the current exchange rate of USD / JPY (divide, because the $ 1 offer some yen). It turns 1000 JPY / 89.94 = 11.11 USD.
Another example
So, with the volume of transactions and the value of the item is clear. Proceed directly to the mechanism of trade in the currency market Forex.
Assume that on the EUR / USD, we see growth, that is euro is rising against the dollar.
Not wanting to miss this move, we decide to go long (Buy, Buy) Size 0.1 lot. In other words, at the moment we are going to manage the amount of 10 000 bv, ie in this case, 10,000 EUR (as in the pair EUR / USD - Euro - the base currency). And then the fun part: if we do not have that kind of money, where we take them?
Let's not be too soon to be upset, but rather remember that most of the participants are working on the Forex market through a broker. And that broker offers traders the necessary amount of money on the terms of margin trading. The main principle of margin trading is to provide leverage. For example, a leverage of 1:100 (read as "one in a hundred") says that the purchase or sale of 10,000 of the base currency, you will need a hundred times smaller - only 100 BV This amount is called the margin (from the English margin - collateral) and the base currency is calculated by the formula:
margin (collateral) = contract size / Leverage
In our case, 10 000 EUR / 100 = 100 EUR, and to put the euro into dollars multiplied by the current rate of EUR / USD (multiply as 1 euro give some dollar amount), makes 100 EUR * 1.2484 = 124.84 USD .
Margins in the sense that it guarantees the consistency of the trader to open a position of a volume. During the whole time until the position will remain open, the broker will hold the margin (as a deposit) are not allowed to open on that amount to new positions. The question is what to do if we want to open multiple transactions at the same time? Then we will need either a large amount of funds in the account or more leverage.
The fact that the shoulder can be from 1:1 to 1:500. Then, for example, with the leverage of 1:500 for the same position at 10,000 BV we need the margin is not 100 BV, and only 20 BV (10,000 / 500). In this case, the savings on bail means we can use to open a few more deals.
So back to our position. Let:
our security deposit in the account of $ 150, 1:100 leverage, the currency pair EUR / USD; position size 10 000 EUR.
We have opened a long position at 1.2486 (Ask). This means that we have bought 10,000 euros for U.S. dollars at the rate of 1.2486 in the future they should be more expensive to sell. For this transaction the broker gave us: 10 000 EUR * 1.2486 = 12,486 USD. Deposit = 10 000/100 * 1.2486 = 124.86 USD.
We assume that our predictions come true, and the EUR / USD rose to 1.2586, that is, by 100 points.
In this case we decide to close the position and take profits. According to the rules of margin trading Forex (on terms which we are working with a broker) any open positions must be closed by the end opposite to the position of the same amount. Therefore, at the close of our broker automatically sells 10,000 euros back for dollars, but for new, higher rate of 1.2586 (Bid). Thus, for 10 000 euros, we now get: 10 000 EUR * 1.2586 = 12,586 USD.
EUR 10 000 broker will collect itself and cease to hold a margin of $ 124. But the difference between the sale price and the purchase price is ours. 12 586 - 12 486 = 100 USD.
This is our profit, a broker credited to the account after the position is closed.
Thus, our deposit will now be 250 USD ($ 150 deposit and $ 100 profit). Incidentally, in the MetaTrader 4, which we provide, you can see a profit in euros, dollars or rubles, depending on the type of account open.
Let us consider the case when we were wrong. For example, when the price reached the level 1.2436 (down 50 points).
We decide to limit the loss and close the deal. Thus, for 10 000 euros, we now get: 10 000 EUR * 1.2436 = 12,436 USD.
As in the first case the relevant difference between the sale price and the purchase price: 12 436 - 12 486 = -50 USD.
Unfortunately it is our loss.
Since the broker is not to blame for this situation, he takes after closing 10 000 euros, and the lack of $ 50 plus a spread (2 points on EURUSD) debited from the trader's account. Thus, our deposit now will be 98 USD.
As you may notice, the broker will credit or debit the outcome of the transaction until the position is closed. Up to this point, the financial result of the transaction will be calculated and reflected in the index of floating profit / loss on the position. And if you open more than one position, it will be calculated and the total floating profit / loss account. In addition, the margin trading in Forex Funds used indicator (equity), which reflects the state of the deposit, with an immediate closing of all positions in the account.
Funds (equity) = amount on the deposit (balance) - floating loss + floating profit.
Consider the situation if we did not close the position and rate continued to decline. Then the losses will also increase, reducing the amount of funds (equity) account 150 .. 100 .. 50 .. 30 ... It should be noted that along with the other indicators broker always calculates the margin. Calculation formula is as follows:
margin = Equity / Margin * 100%
If your margin account reaches at least 10%, then the broker will trigger an automatic stop-out (Stop Out), meaning the forced closure of the most unprofitable position in a row. Obviously, this is not the broker executes on a whim, and just have to do it to save their money and quietly allow other traders to trade.
In our example, the stop-out occurs at a time when funds will be less than U.S. $ 4.12 (that's 10% of the collateral, because our margin $ 124).
Conclusion: equity trader in the Forex market is only 0.002 to 1% of its ongoing operations. Obviously, because of margin trading in the Forex trader increases the potential: with the account is relatively small security deposit, it can handle a very substantial sum, so profits can be ten times more money.
Exchange Forex (forex) is an international exchange rates, which is an integral part of the global market. On the LSE of purchase and sale of foreign currency, which comes in due time. Exchange Forex (forex) is not as such address or location on the map. It is a global trading computer system, which is the movement of large amounts of financial flows. Through this exchange is trading world currencies, stocks, oil and nonferrous metals.
Therefore, besides the existing commodity and stock exchanges, there is also a currency exchange, which for trading all day and night, of course, except for weekends and some holidays. All this is made possible by the Internet. The main participants of the Forex exchange are, as a rule, central and international commercial banks, various firms operating in the export and import.
Exchange Forex (Forex) - is a kind of decentralized system whose members are united by various communication channels. The emergence and development of communication has led to the emergence of a new "remote" type of trade - trade through electronic dealing systems, which are gradually replacing traditional telephone dealing.
The Forex exchange can make a purchase, for example, the currency Euro (EUR) for the Swiss Franc (CHF) and Japanese yen (JPY). Movement and the operations performed on the Forex Exchange, are the determining factors ratios convertible world currency exchange rates. All currencies used for trade, are present in it in the form of currency pairs with a floating exchange rate.
Trading in the foreign exchange market is just a huge scale, and it happens that in one day, the volume of currency in the Forex can be up to three trillion dollars, which is higher than the volume of trading on the stock exchanges in almost fifty times. Over the past few years Forex trading on the stock exchange gained high popularity. Today it is very popular and profitable activity. About 80% of the transactions made on the Stock Exchange Forex - is transactions made for speculative profit when playing on the difference in exchange rates.
Exchange Forex (forex) to date of all existing exchanges is the largest and most global. Here, the participants are given a unique opportunity to quick money. It is, in fact, has no minimum deposit to start trading since that currency as trading tools, have a maximum level of liquidity. So, on the Forex exchange can not occur a situation where there is no deal on a counterparty, as the commission trading.
Transactions made on the Forex market are called positions. Customary to distinguish two types of positions:
Buy position, in English - BUY (read as "bye"), opens in the calculation of the growth of the exchange rate;
Position on the sale, in the English language - SELL (read as "Sally"), opens in the fall based on the exchange rate.
Just note that the purchase is also called a "long position", as noted, that the course is usually long and slowly growing. Conversely, the sale is called a "short position", as the decline in exchange rates are often hard and fast.
So:
- If you are going to rise in the euro against the U.S. dollar, and thus the growth of the euro / dollar, we should take a position on a pair BUY EUR / USD (buy euros for U.S. dollars);
- If you plan to reduce the cost of the euro against the U.S. dollar, and therefore fall in the euro / dollar, we should take a position on a pair SELL EUR / USD (euro sell for U.S. dollars).
The above arguments are equally valid for all currency pairs. Thus, the trader can work in two ways - earn as you rise and fall in the exchange rate. So you finally secured the decision tree, look at the picture presented by:
For now, let us remember that the value of the exchange rate declared by the seller or buyer, willing to make a deal at this point in time, called the quote currency. In addition, for each currency pair is always presented two quotes:
ASK (Ask or Offer) - the price at which the trader can buy the base currency broker;
bid (Bid or Last) - the price at which the trader can sell the base currency broker.
Take a look at the typical presentation of quotations:
Now we see that the EUR / USD = 1.2484/86 (a shorthand Bid and Ask are also often used.) This means that a trader can buy euros for U.S. dollars at a price of Ask = 1.2486 or may sell euros for U.S. dollars at a price of Bid = 1.2484.
Please note that the sale price (bid) is always less than the purchase price (Ask). The difference between the purchase and sale of call spread - a traditional commission for the transaction in any financial market, more familiar to us by foreign currency exchange. Spread may be either fixed (permanent) or floating, that is a little change over time. Value spread is usually due to liquid currency pairs (trading activity) and internal conditions of a broker. In general, at any time, the spread is as follows:
Spread = Ask - Bid
Accordingly, the spread in this case is 1.2486 - 1.2484 = 0.0002 or 2 points. Point or pips (Point, Pips) is called the minimum step change in the exchange rate. Thus, the currency pair EUR / USD quote change at one point corresponds to a change in the unit of the last quarter of the value of the decimal point. For example, changing from 1.2401 to 1.2402, or 1.2485 to 1.2486, etc. Quote change by 100 points is called a great figure.
Traditionally, almost all currency pairs (EUR / USD, GBP / USD, USD / CHF, etc.) corresponds to one point ten-thousandth of quotes, ie 0.0001, and the only course of USD / JPY and the cross rates with the Japanese yen - a hundredth of a, ie 0.01. But today, many brokers try to exact quotation, so do not be surprised if you see the kind of quotes 1.24849 for EUR / USD or 89,948 for USD / JPY. Naturally, in this case, one item will fit 0.00001 and 0.001 share quotes.
Any transaction in our lives a stipulated amount of money, whether it is a common purchase in a store or a contract for the supply of the car car parts. And to trade in the Forex market in the transaction necessarily determine its size. But rather a contract size of the standard units - lots. In the forex market it is assumed that:
1 lot corresponds to 100,000 of the base currency
Recall that the base currency is the one which is the first in the currency pair. It turns out that when a trader opens a position in one lot at a euro / dollar (EUR / USD), then the size of the contract - 100 000, but if he takes a position in one lot at a pair dollar / franc (USD / CHF), the size of the contract will be 100,000 dollars. At the same time, not necessarily to start trading in the Forex market such large amounts - the size of the transaction can be expressed in partial (fractional) lot. For example:
0.05 of the lot is 5000 base currency
0.2 lot = 20,000 BV,
2.3 lot = 230,000 BV
5 lots = 500,000 BV etc.
It is important to understand what determines the size of the contract or the profit potential losses in a particular transaction (s) is, as it determines the value of one point when the quotes. Initially, the point value is always expressed in the quoted currency (the one which is in second place in the currency pair). A formula for the calculation is as follows:
cost of the item in the quoted currency = item * share points
So, if a position in one lot at a pair of EUR / USD, then the cost of the item = 100 000 * 0.0001 = 10 USD (as the dollar - quote currency). But if the volume reduced to 0.05 lot, the cost of the item will be the 5000 * 0.0001 = 0.5 USD. Thus, the profit (or loss) for a certain number of points in the position will vary in proportion to lot.
If the position of 1 lot is opened (or will open) for the pair EUR / JPY, then the cost of the item = 100 000 * 0.01 = 1,000 JPY (Yen as quote currency). And to convert yen into dollars, is divided by the current exchange rate of USD / JPY (divide, because the $ 1 offer some yen). It turns 1000 JPY / 89.94 = 11.11 USD.
Another example
So, with the volume of transactions and the value of the item is clear. Proceed directly to the mechanism of trade in the currency market Forex.
Assume that on the EUR / USD, we see growth, that is euro is rising against the dollar.
Not wanting to miss this move, we decide to go long (Buy, Buy) Size 0.1 lot. In other words, at the moment we are going to manage the amount of 10 000 bv, ie in this case, 10,000 EUR (as in the pair EUR / USD - Euro - the base currency). And then the fun part: if we do not have that kind of money, where we take them?
Let's not be too soon to be upset, but rather remember that most of the participants are working on the Forex market through a broker. And that broker offers traders the necessary amount of money on the terms of margin trading. The main principle of margin trading is to provide leverage. For example, a leverage of 1:100 (read as "one in a hundred") says that the purchase or sale of 10,000 of the base currency, you will need a hundred times smaller - only 100 BV This amount is called the margin (from the English margin - collateral) and the base currency is calculated by the formula:
margin (collateral) = contract size / Leverage
In our case, 10 000 EUR / 100 = 100 EUR, and to put the euro into dollars multiplied by the current rate of EUR / USD (multiply as 1 euro give some dollar amount), makes 100 EUR * 1.2484 = 124.84 USD .
Margins in the sense that it guarantees the consistency of the trader to open a position of a volume. During the whole time until the position will remain open, the broker will hold the margin (as a deposit) are not allowed to open on that amount to new positions. The question is what to do if we want to open multiple transactions at the same time? Then we will need either a large amount of funds in the account or more leverage.
The fact that the shoulder can be from 1:1 to 1:500. Then, for example, with the leverage of 1:500 for the same position at 10,000 BV we need the margin is not 100 BV, and only 20 BV (10,000 / 500). In this case, the savings on bail means we can use to open a few more deals.
So back to our position. Let:
our security deposit in the account of $ 150, 1:100 leverage, the currency pair EUR / USD; position size 10 000 EUR.
We have opened a long position at 1.2486 (Ask). This means that we have bought 10,000 euros for U.S. dollars at the rate of 1.2486 in the future they should be more expensive to sell. For this transaction the broker gave us: 10 000 EUR * 1.2486 = 12,486 USD. Deposit = 10 000/100 * 1.2486 = 124.86 USD.
We assume that our predictions come true, and the EUR / USD rose to 1.2586, that is, by 100 points.
In this case we decide to close the position and take profits. According to the rules of margin trading Forex (on terms which we are working with a broker) any open positions must be closed by the end opposite to the position of the same amount. Therefore, at the close of our broker automatically sells 10,000 euros back for dollars, but for new, higher rate of 1.2586 (Bid). Thus, for 10 000 euros, we now get: 10 000 EUR * 1.2586 = 12,586 USD.
EUR 10 000 broker will collect itself and cease to hold a margin of $ 124. But the difference between the sale price and the purchase price is ours. 12 586 - 12 486 = 100 USD.
This is our profit, a broker credited to the account after the position is closed.
Thus, our deposit will now be 250 USD ($ 150 deposit and $ 100 profit). Incidentally, in the MetaTrader 4, which we provide, you can see a profit in euros, dollars or rubles, depending on the type of account open.
Let us consider the case when we were wrong. For example, when the price reached the level 1.2436 (down 50 points).
We decide to limit the loss and close the deal. Thus, for 10 000 euros, we now get: 10 000 EUR * 1.2436 = 12,436 USD.
As in the first case the relevant difference between the sale price and the purchase price: 12 436 - 12 486 = -50 USD.
Unfortunately it is our loss.
Since the broker is not to blame for this situation, he takes after closing 10 000 euros, and the lack of $ 50 plus a spread (2 points on EURUSD) debited from the trader's account. Thus, our deposit now will be 98 USD.
As you may notice, the broker will credit or debit the outcome of the transaction until the position is closed. Up to this point, the financial result of the transaction will be calculated and reflected in the index of floating profit / loss on the position. And if you open more than one position, it will be calculated and the total floating profit / loss account. In addition, the margin trading in Forex Funds used indicator (equity), which reflects the state of the deposit, with an immediate closing of all positions in the account.
Funds (equity) = amount on the deposit (balance) - floating loss + floating profit.
Consider the situation if we did not close the position and rate continued to decline. Then the losses will also increase, reducing the amount of funds (equity) account 150 .. 100 .. 50 .. 30 ... It should be noted that along with the other indicators broker always calculates the margin. Calculation formula is as follows:
margin = Equity / Margin * 100%
If your margin account reaches at least 10%, then the broker will trigger an automatic stop-out (Stop Out), meaning the forced closure of the most unprofitable position in a row. Obviously, this is not the broker executes on a whim, and just have to do it to save their money and quietly allow other traders to trade.
In our example, the stop-out occurs at a time when funds will be less than U.S. $ 4.12 (that's 10% of the collateral, because our margin $ 124).
Conclusion: equity trader in the Forex market is only 0.002 to 1% of its ongoing operations. Obviously, because of margin trading in the Forex trader increases the potential: with the account is relatively small security deposit, it can handle a very substantial sum, so profits can be ten times more money.
Exchange Forex (forex) is an international exchange rates, which is an integral part of the global market. On the LSE of purchase and sale of foreign currency, which comes in due time. Exchange Forex (forex) is not as such address or location on the map. It is a global trading computer system, which is the movement of large amounts of financial flows. Through this exchange is trading world currencies, stocks, oil and nonferrous metals.
Therefore, besides the existing commodity and stock exchanges, there is also a currency exchange, which for trading all day and night, of course, except for weekends and some holidays. All this is made possible by the Internet. The main participants of the Forex exchange are, as a rule, central and international commercial banks, various firms operating in the export and import.
Exchange Forex (Forex) - is a kind of decentralized system whose members are united by various communication channels. The emergence and development of communication has led to the emergence of a new "remote" type of trade - trade through electronic dealing systems, which are gradually replacing traditional telephone dealing.
The Forex exchange can make a purchase, for example, the currency Euro (EUR) for the Swiss Franc (CHF) and Japanese yen (JPY). Movement and the operations performed on the Forex Exchange, are the determining factors ratios convertible world currency exchange rates. All currencies used for trade, are present in it in the form of currency pairs with a floating exchange rate.
Trading in the foreign exchange market is just a huge scale, and it happens that in one day, the volume of currency in the Forex can be up to three trillion dollars, which is higher than the volume of trading on the stock exchanges in almost fifty times. Over the past few years Forex trading on the stock exchange gained high popularity. Today it is very popular and profitable activity. About 80% of the transactions made on the Stock Exchange Forex - is transactions made for speculative profit when playing on the difference in exchange rates.
Exchange Forex (forex) to date of all existing exchanges is the largest and most global. Here, the participants are given a unique opportunity to quick money. It is, in fact, has no minimum deposit to start trading since that currency as trading tools, have a maximum level of liquidity. So, on the Forex exchange can not occur a situation where there is no deal on a counterparty, as the commission trading.