First, a little theory.
Forex trading is the international over-the-counter market exchange. Market on which every day are carried out foreign exchange operations on hundreds of billions of dollars. And as in every market, the Forex, there are buyers and sellers (operators Forex). Buyers come into the market to purchase a certain amount of goods (in this case exchange), the sellers to sell. The transaction concluded between the buyer and seller on the Forex market is called a transaction.
As noted, the participants (operators) of the Forex market is the countries ' Central banks, commercial banks, investment company, etc. Naturally, the amount of transactions they reach huge by the standards of the average person, and sizes. The minimal lot is usually the sum of about 1 million dollars. So, how do you get the small investor in the company of these financial monsters?
it Appears that everything is very simple. Use the services of intermediary broker. Brokerage companies or brokers are the link between market operators and the private investor, which allows him to go on the currency market and make on its operations of purchase and sale of foreign currency. Intermediary services can provide both specialized brokerage companies and commercial banks. Suppose comes to such a company notorious Vasya Navels and declares that passion as he wants to trade in the Forex market. "Nothing is easier,answered,- to conclude with us the contract on broker service, open an account, Deposit insurance premium and forward, to the tops of the market". "What insurance premium?-surprised Vasya is still for what?".
what is required insurance premium? Or the principles of margin trading.
As you know, to sell something unnecessary, you first need to buy something unnecessary. And Vice versa. A vicious circle, in General, it is. But in this case there is no initial capital. If you have any initial amount, the task easier.
Prior to trading, you should open an account with your broker or Bank and transfer to him a certain amount (margin), the value of which depends on the conditions of providing services and can range from 100 to 10 000 dollars. This is your Deposit, capital and main Fund, by which you and will earn money. At the same time, your Deposit will be and insurance premiums, which will not allow the broker to obtain a loss as a result of your trading.
How it works.
let's Say you put your Deposit of $ 1,000. Of course withdraw such money on the currency market is the case for your broker hopeless. Well, not interested operators Forex this detail. No matter how long, your broker will shake wad of dollars before a nose of potential buyers, the effect will be zero. "So, what did I do? ask Bob Gizzards,- I have no more". But in this case, and the credit is provided for Vasya (leverage or arm), from which $ 1,000 increases in tens or hundreds of times. Different broker companies leverage varies. Usually it varies in the range from 10 to 100. I.e., your $ 1,000 turns into 10 000 or 100 000. This is the amount which you will operate. You are not obliged to work on the whole amount at once. Forex trading is lots (lot). Minimal lot size is usually about 10 000.
of Course, you will not be able to withdraw this amount from his account, put in your pocket and get lost in the vast expanses of the Motherland. This credit purely target and send it, you can only buy or sell currencies. And after the completion of the transaction you are obliged to return the full amount of your lender. And what about you? You have your Deposit and profit from the transaction.
Your Deposit of 1 000 USD, a leverage 1:100. Maximum lot is 100 000 USD (1 000 USD*100).
You make a deal to buy EUR / USD maximum lot.
At the time of purchase EUR (open positions) course is 1.2500 USD per 1 EUR. For 100 000 USD, you get 80 000 EUR (100 000:1.2500) the expectation that the Euro will increase. During the day the Euro rate increased by 100 points (a very real situation) and the end of the day is 1.2600 USD per 1 EUR.
You sell (or sell) 80 000 EUR for USD (closing) and get 100 800 USD (80 000*1.2600).
100 000 USD you return to your lender and 800 USD are translated on your Deposit. Therefore, your Deposit at the end of the day is 1 800 USD. All.
Well, it's all about the profit. And if the price has gone not in the desired direction, then what?
Assume the Euro was not grow, and depreciate against the dollar. In this case, your broker forcibly close your position as soon as the size of the loss will amount to 1 000 dollars (the sum on your Deposit). Your score will be reset, and the broker will be in his way. Of course, you can close your position at any time, without waiting for the nullification of the account and minimize the loss or put an order to close (stop-loss). About the orders we'll discuss later.
This is the simplest example of the transaction in the Forex market.
it is Easy to notice, that the transaction consists of two parts:
1. Position opening.
2. Closing a position.
Each opening and closing of positions entails the order to your broker to buy or sell a specific quantity of a currency, for a certain amount of another currency. Therefore, the currency on Forex trading is always traded in pairs. One is the currency of the pair is called the base (or котирующей), the second quote. The base currency is paired in the first place.
for Example in the pair EUR/USD the base currency is the Euro. The GBP/USD pair is the base currency is the US dollar.
the Quote currency is a unit value of one currency (base), expressed in terms of another currency (the quote). Currency quotation consists of two figures. In the first example, for ease of understanding, we used only one of them, but the real work you will use two. The first figure is the ask - the price at which you can sell the base currency, the second - ask (ask or offer) price for which you can buy the base currency for quoted currency.
for Example the EUR/USD bid:1.2510 ask:1.2515. The difference between the bid and ask is called spread means. There is nothing difficult to understand here no, if we recall that under the guise of any exchange office of currencies are present in these best bid and ask. Rate of buying and selling rate of exchange.
Spread - is a primary source of income for your broker. It is the difference of exchange purchase and sale brokerage companies have their main income. Spread size can vary widely. It depends on the currency pair, the state of the market, amount of the transaction. When choosing a broker should take into account the value of the proposed them to spread. Too big spread - a direct attempt to climb in your pocket. Too little spread - should be alerted, because if the company significantly reduces their profits from spread, it will be forced to compensate her from other sources may not always be honest way. In General, the answer to the question what should be the optimal spread quite difficult. The only advice: before selecting a broker walk around, look what conditions exist competing companies, and if something seems suspicious, do not hurry to carry money there. Gather as much information, or just wait.
But we digress.
Even here, what can I say about quotations.
the Quote may be direct or indirect.
Direct quotation - the number of national currency per unit of foreign currency.
Indirect quotation - amount of foreign currency per unit of the national.
this Probably invented especially for what would introduce confusion in the heads of the poor traders. For example, for residents of Russia, the quote USD/USD is indirect, USD/RUB - direct. And what is for Russians, the quotation EUR/USD? It is clear that for the Europeans, indirect, for Americans - direct. And for us? In General, we dwell on this won't just take note of this fact.
foreign Exchange transactions on Forex market are carried out not only with the dollar. The exchange rate between the currencies without dollar are called cross rate. The greatest importance and the largest volumes of trade have the following cross currency: EUR/GBP, EUR/JPY, EUR/CHF and others.
In the first example we have assumed that the price has risen by 100 points. What is a PIP?
Item (pips,point) - a minimum change in the quotes. Most currency pairs are quoted up to 0.0001. I.e. change of quotations with 1.2510 to 1.2520 equal to 10 points.
Figure (big figure or figure) - change of quotations of 100 points.
enter into transactions on the Forex market in two ways. You can wait for the moment when the quotation reaches the desired values and give the order for opening or closing positions broker manually open or close from the market). Or, you can place an order - an order to buy-sell a currency at a rate that was chosen beforehand.
In the second case, the broker automatically execute your order as soon as the quotation reaches the value declared in the order. This is very helpful in case when you can't be near your computer, but you are afraid to miss important movement of the course. You place the order and can go about their business, will do everything for you broker.
Orders are of two types: stop (Stop-loss and limit order Take-profit).
Stop order is intended to limit your loss to a certain level, if the price has gone in unfavourable for you. A stop order is settled at a less favorable rate, than there is on the market at the moment of placing the order. It can also be used for fixing of a part of profit on an open position in case of adverse price move.
You have opened a position: Buy EUR/USD 100 000 at the rate of 1.2550 (i.e. bought 100 000 euros for dollars at the rate of 1 Euro per 1.2550 dollars).
then placed orders: Stop loss sell 100,000 EUR/USD at 1.2510. I.e. if the rate of the Euro against the dollar begins to fall, when дотижении course mark 1.2510 broker will automatically close your position for you at this rate, which will limit the loss of 40 points.
a Limit order is mainly used for fixing profits and exhibited at a more favourable rate, than there is on the market at the moment of placing the order.
You have opened a position: Buy EUR/USD 100 000 at the rate of 1.2550 (i.e. bought 100 000 euros for dollars at the rate of 1 Euro per 1.2550 dollars).
then placed a: Take profit sell 100,000 EUR/USD at 1.2595. I.e. if the rate of the Euro against the dollar will reach 1.2595, the broker will close your position with a profit (profit) 45 points.
Limit order is executed when the market reaches a specified in the order value.
Stop orders can be executed differently by different brokers.
One option: the execution of the order exactly to the specified rate when this rate achieved on the market. The second variant: the order is executed at the quote the following (on time) specified in the order - this quotation can differ from the ordered on a few points. This phenomenon is called Slippage (slip). Of course, for the trader more beneficial to the first option, when orders are executed exactly at the specified rate.
If the stop order is left for the weekend and there have been serious events affecting exchange rates, the courses of the opening of the market may differ from the closing rate, and a stop order can be implemented with a large slippage of several dozens or even hundreds of points.
by Placing orders, you need to remember that the buy orders are executed when the market rate of purchase (Booking), and not the selling (Bid), reaches its specified in the order value.
you Should understand that the order is not placed has direct connection with the open position. For example, if you placed an order for closing a position, but then the position was closed manually to the execution of an order, the order remains valid and if it works, it will open a new position. Therefore you should be careful about placing orders, monitor execution and time to cancel unnecessary.
Open position - this is when the Deposit trader is exposed to risk from exchange rate changes. If you buy, say that the long position is open, if you sell short position is open. Until the time when the position is closed, you are in the market.
in theory, you can keep an open mind arbitrarily long, of course, if the Deposit allows. But if by the end of the day the position is not closed, then transfer the obligations of the open position the next day (Roll-over). It looks like this: at the end of the day your broker makes two opposite deals with your position, and closes immediately re-opens its existing at the time the exchange rate (spread you do not pay), but with a new value date and taking into account the difference in interest rates between the currencies.
depending on the position direction (Buy or Sell) you receive or pay some sum for the transfer of a position (from a few tenths of a point to several points). When a position is rolled over from Friday to Monday, this amount is increased about three times.
Why do you pay or receive for the transfer of position?
Because when concluding a transaction you will get a loan in the currency you are selling, and must pay interest. At the same time you place the bought currency on the Deposit should be paid interest on this Deposit. Interest rates on currencies differ, so there is a difference, which is accounted for postponing the position. If you sell the currency with the higher interest rate, you will pay for postponing the position. If you have bought a currency with a higher interest rate, the broker will pay you for postponing the position.
As mentioned above, until you have an open position, your account is subject to changes. In this period it can be reduced or increased, constantly changing. Trading account for opened positions is also called floating or equity (Equty).
Equity - thing quite real, it is the value of your Deposit for the second time, the value of your Deposit, if you immediately close all positions. Obviously, if there are no open positions, екьюти equal to the Deposit.
Closing a position is not less, and may be even more important than the discovery thereof. When opening a position, you count on a favorable change in the exchange rate and profit, closing a position sums up to your expectations and entails the completion of the transaction. Exactly when closing a position you get to your trading account profit or loss.
So how and when closed?
Properly close a position is to be an optimum profit or minimum loss. Method and time of closing the position shall be designated in the planning phase of the transaction. You must be sure to submit at what point, if any scenario you log out from the market. The expectation that the "first get into a fight, and then we will see" usually leads to sad consequences for your Deposit. One of the variants of the closing position - installation orders (stop-loss and take-profit). There is an opinion that the installation profit orders leads to the each reporting period. You had already closed, and the rate continues to move in the desired direction. To avoid this, you can use the method of " compression profit ", i.e. the transfer of the profit of the order on a certain number of points to the current price on a course of movement of the course. Or use the so-called " trailing stop " (traling stop). That it is more appropriate, everyone is free to decide independently.
Installation of stop-loss, in my opinion, the action is not just useful but necessary. Stop-loss order, proglatyvayushchiy part (sometimes quite substantial) of your Deposit and you thrown out from the market, but keeping the possibility for you to continue trading in the future. It's like a lizard casts a tail to keep your head. The important thing is that the stop loss should be set correctly. Not too close (or constantly be initiated and not too far away (which is not to lose the most part of the Deposit).
the Calculation of the moment of closing the position of thing purely subjective and depends primarily on the trading strategy being used (about trading strategies, indicators, analysis of the market, we'll see "Methods of Forex trading").
Fixed exchange market Forex.
Х USD - us dollar
Х EUR - international European currency-Euro
Х AUD - Australian dollar
Х NZD - новозенландский dollar
Х GBP - pound sterling
Х CHF - Swiss Frank
Х JPY - YEN the Japanese yen
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