Basic concepts of Forex
basic concepts of forex, FOREX market in a transaction, there are two actors: the market maker and market user.
Typically, headlines are as follows: USD / CHF = 1,4980 / 90. This means that a trader can buy dollars for francs at the rate of 1.4990 or sell at the rate of 1.4980.
1.4980 - this bid (the price at which the buyer is willing to buy the currency);
1.4990 - is ask (the price the seller, for which he is willing to sell foreign currency);
Point (point) - is the smallest allowable change in price (pip, pips). 1.3450 - 1.34 - great shape (big figure).
Calculation of one point: USD, EURO - 10.000 - $ 1, 100.000 - 10 $ CHF - 1 / 1, 5 = 0.67, JPY - 100/115 = 0.87Calculation of financial results:
EURO / USD GBP / USD (sell-buy) * lot * N (lot - the amount of the transaction, N - number of lots);
USD / JPYUSD / CHF ((sell-buy) * lot * N) / last price (close price));
(Lot - the amount of the transaction, N - number of lots, last price (close price) - the closing price);
Spread (spread) - the difference between buying and selling (standard bank spreads - 5-10 points).Concepts of production orders
Warrant - a written or verbal order broker a deal to buy / sell (buy / sell) the currency in the prescribed amount in the event of market prices, said a trader in the warrant.
Orders can be placed on the opening or closing position, which, in turn, can be divided into the following orders:
1. Stop loss - risk management techniques to limit the maximum possible loss.
2. Take profit - risk management techniques in order to fix in advance the planned level of profit.
Variety of orders: OCO (order cancel order) - one of the execution of orders cancels the second order. GTC (good till cancelled) - acts to cancel the order directly to the trader.
SWAP - paid position carried the day, or more correctly: buy / sell currency on the spot while the conditions of the conclusion of a forward transaction. SWAP price depends on the difference in interest rates in the currency pair.
Long - (+) requirements.
Short - (-) obligations.
For example, the position is open to order BUY 0,1 JPY
Ie + USD - JPY
Here USD - long, and JPY - short.How much can you earn in the market Forex?
Before answering this question, let's look at some concepts and definitions.
Purchase rate (ASK) - the rate at which a trader acquires currency.Selling rate (BID) - the rate at which the trader sells the currency.Item (point, pips) - this, remember the smallest possible change in exchange rates.Spread (Spread) - the difference in points between the ASK and BID (the difference between the purchase price and sale price). For example, the quotation EUR / USD is BID 0.9940, ASK 0.9950. The spread in this case is 10 points (Spread = ASK-BID = 0.9950 - 0.9940 = 10 points).
Opening of a position - buying or selling currency.
Closing a position - selling or buying a currency amount equal to the earlier, respectively, bought or sold in the open position with a fixed profit / loss.
Leverage - ratio increases the amount of the transaction, compared with the required deposit amount in the account. Typically, leverage = 1:100.Lot - Minimum lot size. Usually it is $ 100,000.
We now turn to a practical example. You - the trader, and you have a bank of $ 1000. After analyzing the market, you are predicting that the EUR will rise in price. Then you ask the dealer about the state of quotation EUR / USD. Get a quote in the form of 0.9940 BID / 0.9950 ASK. That is, the spread is 10 points. It suits you, and you shall order the dealer to buy one lot, opening the position. Leverage Bank - 1:100. Thus, the security of your $ 1000 the bank gave you credit of $ 100,000 (lot size), and bought 100 502.51 euros (100,000 / 0.9950 = 100 502.51).
After a while you learn that your prediction come true, and the EUR has appreciated. You predict that soon the EUR will fall again and decide to close a position selling the lot euros. You again make a request dealer status and get quotes, assume: 1.0000 BID / 1.0010 ASK. It suits you, and you give an order to sell one lot of EUR. Dealer selling 100 502.51 Euro and get $ 100 564.97 (100 502.51 * 1.0000 = 100 502.51). After that, the bank takes a credit of $ 100,000, and the trader's account, that is on your account accrues $ 502.51.
Thus, in our example, you earned 50 points (1.000 - 0.9950) or $ 502.51, representing 50.2% of the deposit amount. Not bad! However, everything in life is not so simple. "Was smooth on paper, but forgotten about the ravines ...". In our example, we have shown a strong enough change in quotations of currencies. These levels change in quotations is usually accompanied by increased risk in transactions.
In our example, you have won, but we could and play, swing the market in the opposite direction. When the currency market is more quiet and conservative, profit will be about 10 times smaller. Which, of course, too bad. And it should be borne in mind that considered in our example, the movement of currencies is real. Sometimes such changes happen and happen within a few hours (and sometimes minutes). At least as profitable as in our example, but still good trade situation arise in the FOREX market every day.