Look at Forex from the point of view of a mathematician

17. Forex for beginners

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Many believe that the Forex trading game. This is partly true, but unlike the game of Forex trading is a real opportunity to earn a living. Investments in the currency market do not require deep mathematical knowledge, but in Analytics trader should understand. One of the most important abilities - the ability to interpret the news.

- Open a demo account (demo)
- The Trader’s Forex Calculator
- Economic calendar
- Video channel: Forex club

Our dealing center has over activities in the international currency market and gives the possibility to earn on sale of currency for both experienced and novice traders (Forex traders). Forecasts of leading analysts of the market, and, including trading robots and signals enable traders in their work.

The initial contribution that would be needed to get started in Forex (despite all the stories, wandering in the Network) is very small. First, you will have the opportunity to trade, to thoroughly examine all the rules and nuances of the market even without any investment (with the help of the demo account no Deposit or Forex accounts). In addition, the Forex market does not have to fear crises and sharp falls. Disaster that make of the enterprising and intelligent millionaire bankrupt, peculiar only to the stock market.

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Game on the FOREX market is speculating in currency (i.e. buy cheaper and sell dearer and Vice versa, first sell more expensive, and then buy cheaper). Unlike the speculation from the one that You encounter every day, translating into dollars and Vice versa, only in the special rules, which I'll try to give You in terms of mathematics.

The Best way to firmly grasp the rules of the new game is the study of these rules in practice in the course of the game. If You have decided, however, get acquainted with this section, it shows Your precision and seriousness of the approach to the case. After reading the text to the end, You will pass some test for great prospect as a player in the FOREX market.

First, as usual in mathematics, we introduce the BASIC CONCEPTS and give them a DEFINITION.

the MARKET RATE is the price at which, at this moment, it is possible to buy or to sell one currency for another. The market rate is set thousands of operations on currency exchange occurring every second in the world. Hence the name - "market". This course exists independently of our preferences and will. It will generate millions of independent participants of the currency market, and Vice versa, its changes, influence on the opinions of these participants. The unpredictability of changes in the market rate - drive mechanism speculative play.

ARBITRAGE (hereinafter the deal - the purchase (sale) currency to eventually sell (buy). We consider only the transaction of exchange of the US dollar USD the EURO (EUR), BRITISH POUND (GBP), SWISS FRANC (CHF) and the JAPANESE YEN (JPY), who are committed to the market rate (hereinafter simply course). It is clear that each transaction is always two sides - the OPENING of the item (for example purchase of USD / JPY) and CLOSING the POSITION (sell USD / JPY). In the interval between the opening position and closing of positions course JPY USD may change, which in fact is a subject of interest to the transaction.

LOT - the minimum amount of currency involved in the transaction. Accordingly, the volume of the deal is always equal to one lot.

Traditionally on the foreign exchange market set the following rule - quotations-EUR/USD and GBP/USD, USD is the QUOTE CURRENCY, ie the rate specifies how much to give USD per EUR and GBP one. The reverse situation with USD/CHF and USD/JPY - USD is the base currency, that is, the quotation shows how much CHF and JPY offer for one USD. This point should be considered when determining the growth rates against the dollar. Increasing the value of the quotation on the USD/CHF and USD/JPY says about REDUCING or WEAKENING the course of these currencies against the USD (the similar situation with the ruble's exchange rate). An increase in the value of quotes on EUR/USD and GBP/USD reflects the GROWTH of, or STRENGTHENING of these currencies against the USD.

We assume that in transactions
EUR/USD, 1 LOT = 100 000 EUR
GBP/USD 1 LOT = 100 000 GBP
USD/JPY, 1 LOT = 100 000 USD,
USD/CHF 1 LOT = 100 000 USD.

Consider the EXAMPLE of the deal on EUR.
Buy 1 lot of EUR according to the rate of 1.0500, i.e. over 105 000 USD buy 100 000 EUR.
Sell 1 lot EUR at the rate 1.0600, i.e. selling 100 000 EUR get 106 000 USD. The profit from the transaction amounted to 1000 USD

Oh, good, when there is 105 000 USD! And if in your pocket only 1 000 USD? Analyze the deal closely. We bought 100 000 EUR and then sold, i.e. our goal was not to convert dollar in Euro, and to profit from changes in the exchange rate of the dollar to the Euro. If we have found such a partner, who would agree to play with us on the result of the transaction, holding her as if in mind! Make each side of 1000 USD as a Deposit, which provides the prize Fund. Such a guarantee is called the INSURANCE DEPOSIT. If the result of transaction is beneficial for us, we'll take your winnings from the Deposit partner, otherwise part with their money. Considered commit exchange rate fluctuations on average in the range of 0.5-1%. When such changes security Deposit can be 100-200 times smaller than the amount of the transaction and provide a guarantee to cover the possible loss on the transaction. The ratio of the transaction to the insurance Deposit is called CREDIT LEVERAGE (LEVERAGE). Note that leverage is a lever multiplying not only Your money, but, unfortunately, and losses. The greater the leverage, the risky game. Now we can define the basic tool of the game in the FOREX market.

TRADING on MARGIN ("MARGIN TRADE) - the procedure of purchase and sale of currencies with the use of the credit leverage and security Deposit, which allows to deal with large amounts of currencies, not making the supply of money. This option trade gave a tremendous impetus to the development of speculative operations on the FOREX market, because on the one hand, reduced overhead on the movement of funds and, on the other, attracted to the market a wide circle of traders with limited capital.

PIPS (POINT) - the minimal step of changes in the exchange rate. To "feel"what the PIPS bring him a value for the considered currencies:
1 PIPS for EUR, GBP, CHF = 0.0001 (i.e., reflects the change in the fourth digit after the decimal point in the sense of course)
1 PIPS for JPY = 000.01.

In our example with the EURO rate change c 1.0500 to 1.0600 was 100 PIPS and provided win 1000 USD. Thus, 1 PIPS on EUR worth of USD 10. Under the word "should" I meant mechanism conversion rate changes in winning or losing on the deal. Let me mention the "cost" PIPSа for other currencies
1 JPY PIPS about 9.5 USD
1 PIPS to CHF about 6.5 USD

Note that the "cost" PIPSов in the game on JPY and CHF each moment is different, because their value is inversely proportional to the rate of these currencies.

I Hope it is clear now that in transactions in the FOREX player only care about the number of PIPSов that you can "bite" on the fluctuations in the rate of the given currency, and how these PIPSы stand.

How to play in the FOREX market?
First, The player selects a play area, through which he intended to use the game. About the rules of selection of the site and we will talk later.

Choosing a platform, a player transfers to the account of site security Deposit, say, 1 000 USD, Playground opens his gaming account and you can start.

In each moment of time the player gets the market rate. It contains two rates - the price of currency purchase (ASK) and the BID price (remember in the exchange office). The difference between these rates is called a SPREAD and usually fluctuates from 2 to 10 PIPS. During the TRADING DAY (time, which sets the ground for transactions), the player can join the game, opening a position on the sale or purchase (BUY or SELL) in four major currencies. In this case the player is discussing with the platform for the opening position and the transaction volume in lots.

Remember that the result of the transaction depends on the leverage that sets the Playground. Therefore, the mechanism of opening a position is calculated to any fluctuation in the exchange player's loss was less than the insurance Deposit. Consider the commonly used method of Deposit. Playground establishes that for each open lot player make a Deposit of 500 USD. This operation splits a player's account in two parts. The first DEPOSIT is not involved in the game and is returned to the player when closing a position. The second is the REMAINDER, constantly reflected current game result. If a player loses his BALANCE is set to zero, the procedure MARGIN CALL-a player either add funds to your account, or Playground COMPULSORILY CLOSES the position of the player at the current rate of loss. Sometimes, due to the large fluctuations of the currency, repayment of the loss should be used and the part of mortgage funds. I want to emphasize again the importance of these rules for the player. Fluctuations in the exchange rate in the period until the position is open the profit, loss. If you open a position the player is not sure that his balance was sufficient to "withstand" change of course for the worse at least 50 PIPS (about 500 USD), then such a risky game will result in losses due to the forced closure. But it is pity to after the closing rate turned around and deal could bring profit!

Now, a player used for playing GBP, waited for quotations 1.6230/1.6235 and decided to join the game in the hope of growth of GBP. For this, it queries the site the opportunity to buy 1 lot at a price of GBP 1.6235. Playground or immediately opens the player position, or offers a new course (usually + 2 PIPSа) and gives the player a time (5 to 10 seconds) to make a decision. In case of confirmation of the intention to open a position on the proposed rate Playground automatically opens a position. We will assume that the player is given the opportunity to immediately open a position to BUY in the size of 1 lot at the rate of 1.6235. In addition to the collateral, Playground immediately write off from the account of the COMMISSION for transaction - usually it is 10 USD per lot and reflect on the rest of the negative difference on the SPREAD (remember?), that amounts to 50 USD (because if you close your open position in this quotation, the rate of the closing will not 1,6235 and 1,6230).

Now is the BALANCE on the player's account
1000 USD - 500 USD(pledge)is 10USD(Commission)-50USD(SPREAD) = 440USD

Obviously, immediately close the deal the player without loss can not, because after closing its account will 940 USD. This situation causes the player to wait for the course to SELL ,at least, will reach the level, which allows to cover the costs of opening the transaction. In our case, the BID should get up to 6 PIPS and achieve value 1.6236.

Consider two variants of this transaction.

1. The winning.
The Player has guessed the market and 15 minutes after the open position rate reached the mark of 1.6250/1.6255. For the price 1.6250 player has closed the deal. Calculate the result.
The Initial expense player - 1000 USD.
Course GBP 15:00 Moscow time (MSK) 1.6230/1.6235
Bought 1 lot at a price of GBP 1.6235, i.e. for 100 000 GBP gave 162 350 USD
Balance in the account - USD 440
Course GBP 15:15 GMT 1.6250/1.6255
Sold 1 lot at a price of GBP 1.6250, i.e. for 100 000 GBP received 162 500 USD
Income from operations amounted to: 162 500 - 162 350 = 150 USD
A Profit on the transaction: 150 USD - $ 10 = $ 140 USD.
A player Account at the end of the transaction: 1140 USD.
Note that the profit in proportion to the number of lots in the transaction, i.e. if a player has made a deal with two lots GBP, the profit amounted to 280 USD (check!).

2. Losing.
15 minutes after opening the GBP dropped to mark 1.6220/1/6225 and the player decided to leave the game.
The Initial expense player - 1000 USD.
Course GBP 15:00 Moscow time (MSK) 1.6230/1.6235
Bought 1 lot at a price of GBP 1.6235, i.e. for 100 000 GBP gave 162 350 USD
the Balance of the player - 440 USD
Course GBP 15:15 GMT 1.6220/1.6225
Sold 1 lot at a price of GBP 1.6220, i.e. for 100 000 GBP received 162 200 USD
Loss from operations amounted to: 162 200 - 162 350 = - 150 USD
Loss of transaction: -150 USD - $ 10 = $ 160 USD.
A player Account at the end of the transaction: 840 USD.

I Wonder what would have happened if the rate continued to fall, and the player holding the position. With the passage of the level 1.6191/1.6196 work procedure MARGIN CALL, because with this course, the current loss on the transaction is 162 350 - 161 910 = 440 USD and zero balance of the player. At such a rate Playground forcibly close the position of the player and the sad result of the transaction is due to return to 500 USD and only, the loss will amount to USD 500!

In the example, we made a deal with buying GBP and the gain received as a result of growth of this currency against the dollar by 20 PIPS (c 1.6230 to 1.6250), losing a weakening of 10 PIPS (1.6230 to 1.6220). When playing with the sale of GBP we were interested would weakening of the currency to USD. I.e. similar results we obtained the following courses (opening a position to SELL at the exchange rate 1.6230):
winning - close 1.6215, falling 20 PIPS, winning 140 USD
losing - close 1.6245, growth of 10 PIPS, loss 160 USD.
Spend calculations independently verify the accuracy of these results.

This example is the essence of operations on the FOREX market. The attentive reader could not help but notice the difference in winning and losing on the deal - increase of rate of 20 PIPSов earning 140 USD, a decrease of 10 PIPSов - lose 160 USD. This difference is self-interest grounds, enclosed in a SPREAD and a fee, a payment to the organizer for the provision of the game. By the way, this is not all payments which removes the Playground with the player. If we did not close the deal within one trading day, Playground would be kept from our account INTEREST payments for each portable lot on the next trading day. Interest is similar to the interest rate on the Bank credit, i.e. it is considered that during one trading day, the player uses the means to carry out transactions for free, and then has to pay. Interest will accrue for each day of the entire period during which you held my position open.

We assume that the interest is 15 USD per lot, and that the player in the above example waited course 1.6250 three trading days. In this case the profit will be: 140USD - (3(trading day)*15(interest)*1 lot) =95USD.

Now, in General, and all. As we see, the rules of the game are not very complicated. Note that exchange rates is not entirely accidental. They are subject to certain laws and effects of various economic factors. This is the "highlight" of the game at FOREX - processing of economic news to predict the behavior of the course. Therefore, this game can be interesting not only to the players, fans of roulette, the "blind" case, but the first "serious" intellectuals, analysts, who want to learn the laws of macroeconomics and apply them in practice.

In conclusion, a few words about the choice of the Playground. To do this You need to carefully study all the information about the site, the rules of the game that it offers and answer the following questions:
- whether actions site of the laws of Your country
- what kind of program-technical means Playground provides You with access to the FOREX in terms of convenience, simplicity, reliability and efficiency
- what currency is and how they are calculated
- how and by whom the taxation of income from such operations
- what is the minimum game Deposit
- how installed SPREAD, INTEREST, LEVERAGE, procedure MARGIN CALL
- what additional support (technical, analytical, informational, etc) You will receive from the site.

What answers You get, dependent on the conditions for the game, which will provide You with Playground, and accordingly the result of this game. Site selection - the process is complicated and long. Explore a range of options and don't take no deliberate decisions.

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