| |
| |
|
WebsiteAlways |
|
Example of a Profitable Transaction in FOREX
To make a profit, in the FOREX, a trader can enter the market as a *buy position* (known as going "long") or a *sell position*(known as going "short"). For discussion, let's assume you've been studying the EURO. Your trading methods, rules, strategies, etc., tell you that prices will rise during a particular timeframe. So you buy the EUR/USD pair (or, technically, you will simultaneously buy euros, the base currency, and sell dollars). You open up your handy trading station software (provided to you for free by the online broker), which resides on your desktop, and you see that the EUR/USD pair is trading at: > REMEMBER: the quote to the left of the / (1.3242) refers to the bid or "sell" price (what you obtain in USD when you sell EUR). The quote to the right of the / (1.3245) is used to obtain the ask or "buy" price (what you have to pay in USD if you buy EUR). So, since you believe that the market price for the EUR/USD pair will go higher, you will enter a *buy position* in the market. For simplicities sake, let's say you bought one lot at 1.3245. As long as you sell back the pair at a higher price, then you make money. But, no worries. This seemingly elaborate process is handled, and even calculated for you, via the broker's software mentioned above. The chart software and the quote board are in agreement with all sides of the currencies. To illustrate a typical FX SELL trade, consider this scenario involving the USD/JPY currency pair: REMEMBER ~ Selling ("going short") the currency pair implies selling the first, base currency, and buying the second, quote currency. You sell the currency pair if you believe the base currency (USD) will go down relative to the quote currency (JPY), or equivalently, that the quote currency (JPY) will go up relative to the base currency (USD). NOTE: while the Profit Calculations, on the Short-sell trade scenario below, may seem somewhat complicated if you've never been in the 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 the US Dollar (USD) is overvalued against the YEN (JPY). To execute this strategy, you would sell Dollars (simultaneously buying YEN), and then wait for the exchange rate to rise. So you make the 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 the YEN to realize any profit. You buy US $100,000 at the 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 the current USD/JPY rate of 104.30. Total profit = US $920.42 Omar Vargas is a freelance writer with articles published in a number of places. You can learn more about Forex trading and its great advantages over other kind of business at this useful website: http://www.1-forex.com
MORE RESOURCES:
Currency-Trading - Google News |
|
|
|
RELATED ARTICLES
Online Stock Trading: Freedom of Trade I remember the first time I started to trade online. It was just before the tech bubble of the late 1990's and the internet was still something new for most people. FOREX 101: Make Money with Currency Trading For those unfamiliar with the term, FOREX (FOReign EXchange market), refers to an international exchange market where currencies are bought and sold. The Foreign Exchange Market that we see today began in the 1970's, when free exchange rates and floating currencies were introduced. Chinas New Currency Regime The base unit for the renminbi is the yuan, which is how the Chinese currency is most commonly referred to. The official ISO abbreviation for the yuan is CNY, but it is also commonly abbreviated in the forex industry as RMB. The Nature of the Trading Business Consider the following: As a trader you are in a business. Your strongest opponent has plenty of capital. Forex Currency Trading It is possible to buy and sell money from different countries on the foreign exchange market called Forex. Forex currency traders can profit by taking advantage of the dips and swells in the foreign currency market. Why Demo Account Performance Is Often Better Than Real Account Performance Over the past several years, the popularity of online currency trading has grown substantially. Each day, online FX brokerage firms attract new investors - each of them lining up with a glint in their eye, lured in by promises of easy money. Discovering Turnaround Candidates There are many types of investment methodology out there. All of them has their own merits. Day Trading - Moving Averages vs Support and Resistance When day trading the SP and Nasdaq futures, do you rely on your moving averages more than your support & resistant areas?During the first hour of trading, the support and resistance zones on the SP and Nasdaq futures are the most important things to watch. The moving averages have not yet had a chance to come into play. Forex Scams: How to Spot Them A Mile Away In recent years, investors have witnessed increased number of investment opportunities and offerings. While the complexity and success of these investment products vary, technological innovation has made the Forex market one of the fastest growth areas. How Do Other Countries Devalue Their Currencies? Countries devalue their currencies only when they have no other way to correct past economic mistakes - whether their own or mistakes committed by their predecessors.The ills of a devaluation are still at least equal to its advantages. Forex Trading Can Be Like Day-trading Forex trading, or foreign currency trading, has become a bit of a craze of late, especially since it is something available to anyone who owns a computer. And anyone who is willing to put in some training time can profit from forex trading. The Seven Most Traded Currencies in FOREX. Currencies are traded in dollar amounts called "lots". One lot is equal to $1,000, which controls $100,000 in currency. Getting a Forex Trading Education Many Americans are interested in getting involved in forex trading. Before doing this, you should get a forex trading education. The Margin Advantages of Trading FOREX. There is one aspect that is considered as one of the best advantages of FOREX Trading. This is related to the amount of money you need to place a trade, this is known as "margin", and in short, this is all that can be lost in a the case you had a bad trade. Risk and Stock Trading Fees: The Two Barriers To Overcome If You Want A Successful Trading Career. You know the old joke:"How do you make a million in the stock market? Start with two million?"There is no way around it, risk and stock market fees are a part of trading that you can`t avoid. But, you can manage your risk. 5 Questions You Need To Have Answered Before You Back-Test Your Forex System As 90-95% of new forex traders lose money within the first 3-6 months this article helps to guide new forex traders by asking 5 questions that the forex trader needs to know prior to back-testing their forex system.Let us jump right in. Trading Tips No 1: Learn How to Trade The Moment of Truth So you have learned how to trade the markets by mastering a few trading tools like Moving Averages, Channels, Stochastics, MACD, or RSI - that is a great accomplishment achieved by only a few. However, having the tools and rules to trade markets successfully, year in and year out, is only half of the challenge. Forex Trading Online - 7 Reasons Why You Should! Forex trading online is a fast way to use your investment capital to it's fullest. The Forex markets offer distinct advantages to the small and large traders alike, making Forex currency trading in many ways preferable to other markets such as stocks, options or traditional futures. Forex Options Market Overview The forex options market started as an over-the-counter (OTC) financial vehicle for large banks, financial institutions and large international corporations to hedge against foreign currency exposure. Like the forex spot market, the forex options market is considered an "interbank" market. Welcome to the World of Currency Trading Indeed large multinational and individual banks and other major financial institutions have dominated FX trading (also known as Forex trading), but there is a paradigm change in the nature and type of investing. According to one estimate, in the new millennium, there are over 6 million online investment accounts, up from 1.
|
| Interesting articles | Home | site map | Link |
| © 2006 |
