How To Start Trading The Forex Market? Part5

Start Trading The Forex Market? Part5 - What is *PIPS* ?, Currencies are traded on a price/point system (pips). Each currency pair has its own pip value.

How To Start Trading The Forex Market? Part5

How To Start Trading The Forex Market? Part5

When you look at the FOREX quotes, you will see something listed like this:

EUR/USD 1.2210/13


A. If you want to BUY EUR/USD ( meaning you BUY EUROS and SELL US$ ) you buy 100,000 EUROS and you SELL 122.130 US$, or in other words you receive

122,130 US$ for 100,000 EUROS.

B. If you want to SELL EUR/USD (meaning you SELL EUROS and BUY US$) you buy 122,100 US$ and sell 100,000 EUROS, or in other words you receive 100,000 EUROS for 122,100 US$.

The difference between the bid and ask prices is known as the spread. In the example above, the spread is 3 or 3 pips.

Since the US dollar is the core of the FOREX market, it is usually considered the 'base' currency for quotes. In "Major", this includes USD/JPY, USD/CHF and USD/CAD. For these and many others, quotes are expressed as units of $1 USD per second quoted currency in the pair.

For example a quote of USD/CHF 1.3000 means that one U.S. dollar. You receive 1.30 Swiss Francs. or in other words, you receive 1.30 Swiss Francs for every 1 US$.

When the US dollar is the base unit and the quote currency goes up, it means the dollar has appreciated in value and other currencies have weakened. If the USD/CHF quote above goes up to 1.3050 the dollar is stronger as it will now buy more Swiss Francs than before.

The three exceptions to this rule are the British pound (GBP), Australian dollar (AUD) and Euro (EUR). In this case, you may see a quote like EUR/USD 1.2080, meaning for EURO you receive 1.2080 US Dollars.

In these three currency pairs, where the US dollar is not the base rate, an upward quote means the dollar is weakening, as it now takes more US dollars to equal one Euro, British pound, or Australian dollar.

In other words, if the quote currency goes higher, it increases the value of the base currency. A lower quote means the base currency is weak.

Currency pairs that do not involve the US dollar are called cross currencies, but the calculation is the same. For example, a quote EUR/JPY 134.50 signifies that one Euro equals 134.50 Japanese yen.

HOW TO BUY ( to be " LONG " ) and SELL ( to be " SHORT " ) in the FOREX Market?

Remember 2 very important rules:

RULE #1) Cut your LOOSING trades and let your WINNING trades RUN

YOU WILL LOSE TRADE. Every FOREX trader has. The secret is, consistent and disciplined traders, in the end, add more winning trades than losing trades.

When you see on your chart, without a doubt, that you are in a losing trade, don't keep losing money. Most novice traders lower their stop losses just to "prove they are right" or "hope the market will turn around". 99% of these trades, end up with more losses. Most profitable trades are usually "right" right away.

Remember, smart traders know there are many other opportunities. CUT your losses and combine those winning positions.

RULE 2) NEVER trade FOREX without placing a Stop Loss Order.

PLACING STOP orders, together with your ENTRY orders, through your online trading station, to prevent potential losses.

Before starting any trade, you should calculate at which point (price) you will go wrong, because the market is changing direction, and wants to cut your losses.

To make a profit, in FOREX, a trader can enter the market with a *buy position* (known as a "long") or a *sell position* (known as a "short").

For example, let's assume you have studied EURO. The EURO is paired first with the US dollar or USD.

Your trading methods, rules, strategies, etc., tell you that the EURO will be rice in the next 2 weeks, So you buy the EUR/USD pair which means you will simultaneously buy EUROS, and SELL dollars).

You open the excellent trading station software (provided to you free of charge by Fenix ​​Capital Management, LLC ) and you see that the EUR/USD pair is trading at:

EUR/USD: 1.2010/1.2013

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 example, let's say you bought one lot of EUR/USD at 1.2013. As long as you resell the pair at a higher price, you make money.

To illustrate a typical SELL FX trade, consider this scenario involving the USD/JPY currency pair:

REMEMBER Selling ("going short") a currency pair implies selling the first base currency, and buying the second quote currency. You sell a currency pair if you believe the base currency (USD) will fall relative to the quote currency (JPY), or equivalently, that the quote currency (JPY) will go up relative to the base currency (USD).


Profit calculation, in the Short-sell trading scenario below, might seem a bit complicated if you've never been in the FOREX market before, but the process continues to be calculated through your broker's trading station (software). I show this process below so you can SEE how PROFIT is possible.

The current bid/ask price for USD/JPY is 107.50/107.54, meaning you can buy $1 US for 107.54 YEN, or sell $1 US for 107.50 YEN.

Suppose you think that the US Dollar (USD) is overvalued against the YEN (JPY). To execute this strategy, you would sell Dollars (along with buying YEN), and then wait for the exchange rate to rise.

Your trade is as follows: You sell 1 lot of USD (US $100,000) and you buy 1 lot of JPY (10,754,000 YEN). (Remember, at 0.25% margin, your initial margin deposit for this trade is $250.)

As you would expect, USD/JPY dropped to 106.50/106.54, meaning you can now buy $1 US for $106.54 Japanese YEN or sell $1 US for 106.50.

Since your dollar is short (and YEN is long), you must now buy dollars and resell YEN for any profit.

You bought US$100,000 at the current USD/JPY rate of 106.54, and received 10,654,000 YEN. Since you originally bought (paid) 10,754,000 YEN, your profit is 100,000 YEN.

To calculate your P&L in US dollars, divide 100,000 by the current USD/JPY rate of 106.54

Total profit = US$938.61

That's How To Start Trading The Forex Market? Part5


PIPSFOREX quotesFOREX marketFOREX traderFOREXFX trade forex exchange market,financial markets,how to start trading forex markets

Post a Comment for "How To Start Trading The Forex Market? Part5"