How To” Start Trading The Forex Market? (Part 5)July 11, 2018
What are *PIPS* ?
Currencies are traded on a price/ point (pip) system. Anniversary bill brace has its own pip value.
When you see a FOREX amount quote, you’ll see something listed like this:
a) If you wish to BUY the EUR/USD ( acceptation you BUY EUROS and SELL US$ ) you buy 100,000 EUROS and you SELL 122,130 US$, or in added words you accept 122,130 US$ for 100,000 EUROS.
B) If you wish to SELL the EUR/USD ( acceptation you SELL EUROS and BUY US$ ) you buy 122,100 US$ and advertise 100,000 EUROS, or in added words you accept 100,000 EUROS for 122,100 US$.
The aberration amid the bid and the ask amount is referred to as the spread. In the archetype above, the advance is 3 or 3 pips.
Since the US dollar is the centerpiece of the FOREX market, it is commonly advised the ‘base’ bill for quotes. In the “Majors”, this includes USD/JPY, USD/CHF and USD/CAD. For these currencies and abounding others, quotes are bidding as a assemblage of $1 USD per the additional bill quoted in the pair.
For archetype a adduce of USD/CHF 1.3000 agency that ahead one U.S. dollar you accept 1.30 Swiss Francs. or in added words, you accept 1.30 Swiss Franc for anniversary 1 US$.
When the U.S. dollar is the abject assemblage and a bill adduce goes up, it agency the dollar has accepted in amount and the added bill has weakened. If the USD/CHF adduce aloft increases to 1.3050 the dollar is stronger because it will now buy added Swiss Franc than before.
The three exceptions to this aphorism are the British batter (GBP), the Australian dollar (AUD) and the Euro (EUR). In these cases, you ability see a adduce such as EUR/USD 1.2080, acceptation that for EURO you accept 1.2080 U.S. Dollars.
In these three bill pairs, area the U.S. dollar is not the abject rate, a ascent adduce agency a abrasion dollar, as it now takes added U.S. dollars to according one Euro, British batter or an Australian dollar.
In added words, if a bill adduce goes higher, that increases the amount of the abject currency. A lower adduce agency the abject bill is weakening.
Currency pairs that do not absorb the U.S. dollar are alleged cantankerous currencies, but the adding is the same. For example, a adduce of EUR/JPY 134.50 signifies that one Euro is according to 134.50 Japanese yen.
HOW TO BUY ( traveling “ LONG ”)and SELL ( traveling “ SHORT ”) in the FOREX Market?
Keep in apperception 2 actual important rules:
RULE # 1) Cut your LOOSING trades and let your WINNING trades RUN
YOU WILL HAVE LOSING TRADES. Every FOREX banker has. The abstruse is, that a consistent, acclimatized trader, at the end of the day, adds up added acceptable trades than accident trades.
When you and see on your charts, after any doubt, that you are in a accident trade, don’t accumulate accident money. Most of the amateur traders are blurred their stop accident just to “prove they are right” or “hoping that the bazaar will reverse”. 99% of these trades, are catastrophe up with added losses. Most of the assisting trades are usually “right” immediately.
Remember, acute traders apperceive there are abounding added opportunities. CUT your losses abbreviate and admixture those acceptable positions.
RULE 2) NEVER EVER barter FOREX after agreement a Stop Accident Order.
PLACE a STOP order, appropriate forth with your ENTRY order, via your online trading station, to anticipate abeyant losses.
Before initiating any trade, you accept to account at what point ( price) you would be wrong, because the bazaar afflicted direction, and would wish to cut your losses.
To accomplish profits, in the FOREX, a banker can access the bazaar with a *buy position* (known as traveling “long”) or a *sell position* (known as traveling “short”).
As an archetype let’s accept you’ve been belief the EURO. The EURO is commutual aboriginal with the U.S. dollar or USD.
Your trading methods, rules, strategies, etc., acquaint you that the EURO will rice in the next 2 weeks, So you buy the EUR/USD brace acceptation you will accompanying buy EUROS, and SELL dollars).
You accessible up your accomplished trading abject software (provided to you for chargeless by Fenix Capital Management, LLC www.fenixcapitalmanagement.com) and you see that the EUR/USD brace is trading at:
As you you accept that the bazaar amount for the EUR/USD brace will go higher, you will access a *buy position* in the market.
As an example, lets say you bought one lot EUR/USD at 1.2013. As continued as you advertise aback the brace at a college price, again you accomplish money.
To allegorize a archetypal FX SELL trade, accede this book involving the USD/JPY bill pair:
REMEMBER Affairs (“going short”) the bill brace implies affairs the first, abject currency, and affairs the second, adduce currency. You advertise the bill brace if you accept the abject bill (USD) will go down about to the adduce bill (JPY), or equivalently, that the adduce bill (JPY) will go up about to the abject bill (USD).
HOW TO CALCULATE PROFIT OR LOSS?
The Accumulation Calculations, on the Short-sell barter book below, may assume somewhat complicated if you’ve never been in the FOREX bazaar before, but this action is always affected through your agent barter abject (software). I appearance you this action beneath so you can SEE how a PROFIT ability occur.
The accepted bid/ask amount for USD/JPY is 107.50/107.54, acceptation you can buy $1 US for 107.54 YEN, or advertise $1 US for 107.50 YEN.
Suppose you anticipate that the US Dollar (USD) is overvalued adjoin the YEN (JPY). To assassinate this strategy, you would advertise Dollars (simultaneously affairs YEN), and again delay for the barter amount to rise.
Your barter would be the following: you advertise 1 lot USD (US $100,000) and you buy 1 lot JPY (10,754.000 YEN). (Remember, at 0.25 % margin, your antecedent allowance drop for this barter would be $ 250.)
As you expected, USD/JPY avalanche to 106.50/106.54, acceptation you can now buy $1 US for $106.54 Japanese YEN or advertise $1 US for 106.50.
Since you’re abbreviate dollars (and are continued YEN), you have to now buy dollars and advertise aback the YEN to apprehend any profit.
You buy US $100,000 at the accepted USD/JPY amount of 106.54, and accept 10,654,000 YEN. Since you originally bought (paid for) 10,754,000 YEN, your accumulation is 100,000 YEN.
To account your P&L in agreement of US dollars, bisect 100,000 by the accepted USD/JPY amount of 106.54