If brokers believe that an X currency will be affected by economic conditions, and it is likely that their value goes down, they will sell the X currency buying another currency and hoping to win in value against the currency X.
After some time and fluctuating exchange rates, brokers buy back the currency X selling currency Y. If the initial speculation was correct, brokers require less of the currency and to buy the currency X.
the difference between the original amount of money X before and after negotiation is regarded as profit.
major pairs
There are six major world currencies that cover most of the transactions in the Forex market.
These are:
US $ US Dollar
EUR Euro Zone
JPY Japanese Yen
GBP British Pound
CHF Swiss Franc
AUD Australian Dollar
US $ is the most common industry standard currency, and is linked to trade in silver and gold. Currently the euro is the second most actively traded currency, surpassing the dollar in 2006, reaching a record in 2007.
Currency Pair
In Forex, the value of a currency is determined by comparison with another; therefore, always a currency pair has two values. The base currency, which is the value to the left, represents the main or accounting currency broker. Quoted currency, the value to the right, is regularly referred to as the "opposite" or "secondary" currency. (Eg .: USD / AUD, USD is the base currency and AUD is the quote currency). Currency pairs determine the amount of the quote currency is needed to buy one unit of the base currency.
Purchase price and sale
The selling price (Bid) represents the price the Forex market is willing to pay for a certain currency pair. This is the price set which brokers sell your base currency.
The purchase price (Ask) represents the price at which the market is willing to sell a currency pair. This is the price set which brokers buy the quote currency.
For example, the USDCHF 1.1650 / 1.653 par, the selling price is 1.1650. This means you can sell one US dollar 1.1650 US $ per CHF. Also, the purchase price is CHF 1.1653. This means you can buy a dollar US $ per CHF 1.1653.
The difference between the purchase price and selling is the buying and selling spread. The buying and selling spread represents the difference between the highest price that buyers are willing to pay to buy a certain currency against the lowest at which sellers are willing to sell the same currency pair price.
Pipos
A "Pip" or point (Point of Interest for Price) represents the smallest fluctuation in price of a currency pair. For most currencies, the exchange rate is expressed to four decimal places. Therefore, 1 pip represents 1 / 10,000 ° or 0.0001 of the opposite currency. The change of 1 pip for the pair GPB / USD to 1.6319 equals 1.6320. The pip value for some types of change, such as USD / JPY, only expressed to two decimal places (ie, 1/100 ° or 0.01). </ O: p>
Calculation of profits and losses
Most trading platforms automatically calculate profits and losses broker for open positions. Thus, runners can track their gains and losses in sync with changing market prices. Understanding how these calculations are performed can be useful for runners.
Examples:
3 lots of EURUSD sold to 1.2175 and 1.2110 purchased:
In this example, the client 65 pips * 3 lots = 195 pips in total profit (as he sold at a higher price than he bought). The pip value for EURUSD is US $ 10, so that the total profit = 195 pips * US $ 10 per pip = US $ 1.950.
2 lots of USDJPY bought and sold 105.60 105.20:
In this example, the client 40 pips * 2 lots = 80 pips in total loss (as he sold at a lower price than he bought). The pip value for USDJPY is 1000 JPY and this equals 1000 / 105.20 (price of USDJPY closing the position) = US $ 9.506 approximately. The total loss of 80 pips * client = US $ 9.506 per pip = US $ 760.46.
2 lots of EURGBP sold to 0.7015 and 0.6940 purchased:
In this example, the client 75 pips * 2 lots = 150 pips in total profit. The pip value for EURGBP is 10 GBP and this equals 10 * 1.8500 (assuming the price of GBPUSD was 1.8500 to close the position) = US $ 18.50. The total profit is 150 pips * US $ 18.50 per pip = US $ 2775.
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