The concept of trading on the Forex market is based on the process of
buying one currency for another and inverse an operation of selling it,
to make profit. You can make such transactions with almost every
currency of the world.
Let us analyze some examples.
Example 1:
You have 1 600 USD and the exchange rate of GBPUSD is 1.6000, which
means that you can buy 1 000 GBP for 1 600 USD. You buy 1 000 GBP,
hoping that GBP will rise against USD. After a while, GBP really rises
against USD up to 1.6100 for 1 GBP. At such rate, you can exchange 1 000
GBP for 1 610 USD. This way, you have fixed a profit of 10 USD.
FOREX SIGNALS
Example 2:
Let us assume that you have 1 000 GPB, and the exchange rate of GBPUSD
is 1.6000. You sell your GBP for 1 600 USD and you hope that GBP falls
against USD. After a while, the rate falls up to 1.5900, and you decide
to make a reverse operation and buy GBP for 1 600 USD at this rate. As a
result, you have 1 006.28 GBP. This way, you have fixed a profit of
6.28 GBP.
We can make several conclusions based on these examples:
1. You can earn with both ways: when one currency either rises or falls against another one.
2. The currency always rises or falls only against another one.
When you take a look at the table of quotations on FOREX, you will see
two rates in front of every currency pair. Rate to buy and rate to sell.
The main instrument on Forex is a
currency pair - a ratio of one
currency to another. There are more than 100 currency pairs on the
market. Some currency pairs are traded in bigger volumes, whereas some
of them - in smaller volumes. For example, 66% of all volume traded
comes to major currency pairs (majors). These pairs are EURUSD, GBPUSD,
USDJPY, USDCHF, AUDUSD and USDCAD. You have noticed that each pair
contains USD. It is because USD is a world reserve currency. USD
participates in absolutely all currency transactions. Those currency
pairs that do not contain USD, are called
cross currency pairs.
The calculation of the rates of these currency pairs is carried out with
the help of USD. For example, the calculation on the currency pair
EURJPY will be executed this way: EURUSD to USDJPY.
FOREX SIGNALS
Currency, that stands first is called
base currency. Absolutely
all operations are carried out with the base currency. For example,
EURUSD. You sell or buy EUR for the USD that you have in your account.
In case you have another currency in your account, for instance, you
have a GBP account, to complete the transaction on EURUSD, an automatic
operation of pound-dollar conversion occurs, and the trader does not
bear any costs and does not make any unnecessary actions. Everything is
done automatically.
Currency, that is second in the currency pair is called
quoted currency.
It is the expression of base currency price. If EURUSD = 1.4000, this
means that 1 EUR can be bought for 1.4 USD. Currency, that stands
second, shows the result of the ratio of two currencies to each other.
This ratio is called
quotation.
In the classic version, the quotation has a fourth decimal pricing
format.* The minimal quotation change falls on the last digit and is
called
point or
pip. For example, EURUSD changes from
1.4000 to 1.4001. This means that the rate of this currency rises by one
pip. However, the fourth decimal pricing format is the feature of
classic accounts only. NDD and ECN accounts have fifth decimal pricing
format.* This allows you to monitor the changes of the quotations by
fractional pips.
* In currency pairs with
JPY, quotations are displayed in 2d decimal pricing (3d for NDD and
ECN). For the USDJPY currency pair, the quotation will look like this:
84.85. If the rate rises to 84.86, this means that it rises by one
point.
When you take a look at the table of quotations on Forex, you will see
two rates in front of every currency pair: rate to buy and rate to sell.
The price to buy is always higher than the price to sell. Sell rate is
called
Bid, and buy rate is called
Ask. Buy orders are
opened at Ask price and are closed at Bid price. Sell orders are opened
at Bid price and are closed at Ask price. The difference between Bid and
Ask is called
spread. Spread is determined in points.
Information of the EURUSD currency pair on the classic account might look like this:
| Currency pair |
Bid |
Ask |
Spread |
| EURUSD |
1.3063 |
1.3065 |
2 |
There are two very important terms on the Forex market:
margin and
leverage.
Forex trading usually occurs with sufficiently large volumes of money
(one standard lot is 100 000 units of base currency). There is always an
opportunity to trade smaller volumes (e.g., 0.01 lot or 1 000 units of
currency), but not everyone, who wants to try Forex trading has such a
sum of money. That is why traders get a chance to use
leverage.
Leverage lets one trade bigger sums, having much smaller sums on the
trading account. JustForex offers different sizes of leverages: 1:1 up
to 1:2000. For example, you decide to use 1:100 leverage. Therefore, to
trade one standard lot, you need to have 1 000 units of currency. In
this case, 1 000 units of currency will be your
margin.
Forex signal services analyze several factors when preparing
their data. Made a technical analysis of the market conditions, using a
set of indicators to identify trends and isolate profitable entry and
exit points. Then they send you the results via the location of your
choice and you can choose to use bookmarks in your trade, or move on to
this subject.