Aussie Forex Finance
Introduction to Basics of Currency Trading
Investors and traders around the world expect the currency market as a new speculation opportunity. But how are transactions conducted in the Forex Market? Or, what are the basics of Forex? Before venturing into the forex market we need to sure you understand the basics, otherwise we will be lost where least expected. This is what this article is intended to understand the basic concepts Forex trade.
What is traded on the Forex market?
The instrument traded by Forex traders and investors are pairs currencies. A currency pair is the exchange rate of one currency over another. The most traded currency pairs are:
EUR / USD: Euro
GBP / USD: Pound
Pair USD / CAD: Canadian Dollar
USD / JPY: Yen
USD / CHF: Swiss franc
AUD / USD: Aussie
These currency pairs generate up to 85% by volume total generated in the Forex market.
For example, if a trader goes long or buys the Euro, he or she is both buying euros and selling the USD. The same applies if the trader sells short the Australian, he or she is simultaneously selling the AUD and buying the USD.
The first currency of each currency pair referred to as the base currency, while second currency is called the counter or quote currency.
Each currency pair is expressed in units of currency necessary to obtain a unit of the base currency.
If the price or the price of EUR / USD is 1.2545, meaning that U.S. $ 1.2545 are necessary to obtain euros.
Bid / Ask
All currency pairs are commonly quoted with a bid and ask prices. The bid (always lower than the question) is the price of your agent is willing to buy less, so the trader should sell at this price. The question is the price your broker is willing to sell less, so the trader should buy this price.
EUR / USD 1.2545/48 or 1.2545 8 /
The bid price is 1.2545
The sale price is 1.2548
A Pip
A pip is the movement minimum incremental currency pair can make. A pip price represents the point of interest. A movement in the EUR / USD from 1.2545 to 1.2560 equals 15 pips. And a movement USD / JPY from 112.05 to 113.10 equals to 105 pips.
The margin (leverage)
Unlike other financial markets that need the whole deposit of the amount traded in the Forex market that only require a margin deposit. The rest will be given by your agent.
The resulting gain some brokers goes up to 400:1. This means it takes only 1 / 400 or 0.25% of the balance to open a position (floating plus earnings or losses.) Most brokers offer 100:1, where every trader requires 1% in balance to open a position.
The standard lot size in the foreign exchange market is $ 100,000 USD.
For example, a trader wants to obtain a long time in EUR / USD and he or she is using 100:1 leverage.
To open the position, he or she requires 1% in the balance or $ 1,000 USD.
Of course it is not advisable to open a position with such limited funds in our balance commercial. If the trade goes against our trader, the position must be closed by the broker. This brings us to our important term to come.
Margin Call
A margin call occurs when the balance of the trading account falls below the maintenance margin (capital required to open a position 1% when the leverage is 100:1, 2% of the leverage is 50:1, etc.) At this point, the broker sells off (or repurchase in the case of short positions) all of its operations, leaving the trader "theoretically" with the maintenance margin.
Most of the time margin calls occur when the administration the money is not properly applied.
What is the mechanics of a Forex trade?
The trader, after an extensive analysis, decides that there is a higher probability of the pound to rise. He or she decides to go long risking 30 pips and has a target (reward) of 60 pips. If the market goes against of our trader he / she will lose 30 pips, on the contrary, if the market goes in the expected direction, he or she will gain 60 points. The actual appointment of the pound is 1.8524/27, 4 pips spread. Our trader gets long at 1.8530 (ask). At the time the market or our destination (known to take profits) or our point risk (level called "stop loss") we will have to sell at the bid price (the price our broker is willing to buy our position back.) In order to make 40 pips, our take profit level should be placed at 1.8590 (bid price.) If our goal is reached, the market ran 64 pips (60 pips plus margin of 4 pips.) If our stop loss level is reached, the market ran 30 pips against us.
It is very important to understand all aspects negotiation. Home first to the most basic concepts, then move on to more complex issues such as Forex trading systems, psychology commerce, trade and risk management, and so on. And be sure to dominate every aspect before adventuring in a live trading account.
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