Forex FX – Tutorials Pt 7
1. How to trade in Forex Market – Fx Market
Trading in financial
markets, as also in forex market, it’s to predict correctly the market
movement.
It sounds easy.
NO IT IS NOT
If a trader believes the
underline value (financial instrument) – the currency pair will rise, he will buy the pair at the Ask price.
If a trader believes the
underline value (financial instrument) – the currency pair will decline, he will sell the pair at the Bid price.
2. The basic transactions in Forex market
Is to buy when you believe
the currency pair will rise and you sell when you believe the currency pair
will fall.
The driving forces for the
currency exchange rates are various and they can no be predicted or estimated.
There are is the influence
of macroeconomic environment (the
international economics factors and indicators, interest rate,
inflation, growth of National Gross Product etc) socio political factors
(conflicts, diplomatic events) and finally the unexpected, the unknown.
3. How we close a trade
We can take a currency
exchange trade by entering the opposite
position on equal amount of money of the initial position.
It can be very easily
understood, if we have bought Euro with selling US Dollars, we can close the
first trade by doing exactly the opposite, we will sell Euro with buying US
Dollars.
This transaction of closing
a position is called the offesting or liquidating transaction.
4. How we can calculate profits and losses
Usually, when we entering
the offsetting or liquidating trade we can calculate our profits and losses by
using the following formula:
Price (currency pair) Price when buying
When selling the base -
the base currency = PROFIT OR
LOSS
Currency
Example
1
We assume, an individual investor believes Euro will rise
over US Dollar and he buys the EUR / USD pair at 1,3450 and after two days
closes the initial trade, by entering the opposite, sells Euro at the 1, 3460.
We assume the transaction size is 100.000 USD and the net profit, will be 100
USD.
Calculations
(1, 3460 – 1, 3450) x 100,
000 = ,001 x 100, 000 = 100 USD
Example
2
We assume, an individual
investor believes Euro will decline against the US Dollar and he sells the EUR
/ USD pair at 1, 3890 and after ten minutes he closes the initial trade, by
entering the opposite, buys Euro at the 1, 3870. As the example 1 we assume the
transaction size is 100, 000 USD and the net profit, will be 200 USD.
Calculations
(1, 3890 – 1, 3870) x 100,
000 = ,002 x 100, 000 = 200 USD
Elias Stoikos
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