Forex Basics
First some theory.
Forex - is the international OTC market currencies. The market in which every day are carried out foreign exchange operations on hundreds of billions of dollars. And as in every market in the Forex market, there are buyers and sellers (operators Forex). Buyers come to the market for what would buy a quantity of goods (in this case the currency), vendors for what would sell. The deal concluded between the buyer and seller in Forex is called - the transaction.
As noted, the parties (operators) of the Forex market - it's central banks, commercial banks, investment companies, etc. Estesstvenno, the amount of transactions (transactions), they have enormous reach, by the standards of the average person size. The minimum prize amount is usually about $ 1 million. So how to get small investor in the company of these financial monsters?
About brokers.
It turns out that it is very easy. Use the services of an intermediary - a broker. Brokerages and brokers are the link between market operators and private investor, which allows the latter to enter the currency market and make it purchases and sales of currencies. Mediation services may provide a specialized brokerage companies and commercial banks themselves. Let's say a company comes to the notorious Bob navel and declares that passion as he wants to trade on the Forex market. "There is nothing easier - respond to him - make a contract with us on brokerage services, open an account, make the premium and forward to the top of the market." "What - a premium?-Bob is surprised - this is for what?".
Which requires premium? Or the principles of marginal trading.
As you know, for what would sell something unnecessary, you first need to buy something unnecessary. And vice versa. Vicious circle, in general, obtained. But this is the case, if there is no initial capital. If there is at least some starting amount, the task much easier.Before deciding to trade you must open an account with your broker or bank and transfer it to a certain amount (margin), whose value depends on the terms of service and may range from 100 to 10 000 thousand dollars. This is your deposit, capital and fixed assets, with which you will make money. At the same time, your deposit will be, and insurance fee, which will not allow the broker to obtain loss on your trade.
How well it works.
Let's say you put on your deposit U.S. $ 1,000. Of course come up with such a sum in the currency market work for your broker's hopeless. Well, not interested in Forex operators, this trifle. Arbitrarily long time to shake your broker will be bunch of dollars under the nose of the potential buyers, the effect will be zero. "So, what do I do? - Ask Bob Pupkov - I have no more." Here, in this case and given credit for Vasey (leverage or leverage) with which 1000 dollars increased by tens or hundreds of times. Different brokerage firms leverage varies. Usually it ranges from 10 to 100. Ie your 1000 dollars is converted into 10 000 or 100 000. This is the amount you'll manage. You are not obliged to work for the whole amount at once. Forex trading uses lots (lot). Minimum lot size is usually 10 000.
Of course, you can not withdraw that amount from his account, put in your pocket and get lost in the vast expanses of the homeland. This loan is highly targeted and send it only to buy or sell currency. And after the completion of the transaction you must return it in its entirety to your lender. And what will you? You will need your deposit and profit from the transaction.
Example 1.
Your deposit 1000 USD, a leverage of 1:100. Maximum lot with 100 000 USD (1000 USD * 100).You make a deal to purchase (buy) EUR USD maximum per lot.At the time of purchase EUR (open position) is equal to the rate of 1.2500 USD per 1 EUR. Over 100 000 USD you get 80 000 EUR (100 000:1.2500) expectation that the euro will rise. During the day, the euro has risen by 100 points (a very real situation) and by the end of the day is 1.2600 USD per 1 EUR.Do you sell (sell): 80 000 EUR for USD (closing position) and get 100 800 USD (80 000 * 1.2600).100 000 USD you return to your lender, but 800 USD is credited to your deposit. Therefore, your deposit at the end of the day is 1800 USD. Everything.
Well, this is what concerns profit. And if the price has gone not to the desired direction, then what?
Suppose the euro was not to grow, and fall against the dollar. In this case, your broker is forced to close your position as soon as the size of the loss will amount to 1000 dollars (the amount of your deposit). Your account nulled, and the broker will be in his way. Of course, you can close your position at any time, without waiting for reset the account and minimize damage or to place an order to close (stop-loss). On orders, we'll talk about below.This is the simplest example of a transaction on the forex market.
It is easy to see that the transaction consists of two parts:1. Opening position.2. Closing.Each opening and closing position entails order your broker to buy or sell a specific amount of a currency, for a certain amount of another currency. Consequently, the currency on the forex market are always traded in pairs. One of a pair of currency is called the base (or quoted), the second quote. The base currency is always paired in the first place.For example, in the EUR / USD base currency is the euro. In the pair USD / CHF Base currency is the U.S. dollar.
About quotes.
Quotes - the cost of a unit of one currency (base), expressed in units of another currency (the quote). Quotes consists of two numbers. In the first example for ease of understanding, we used only one of them, but the real work you'll use two. The first figure - the bid (bid) - the price at which you can sell the base currency, the second - ASK (ask or offer) - the price for which you can buy the base currency for quoted.
For example EUR / USD bid: 1.2510 ask: 1.2515. The difference between bid and ask price is called the spread (spread). There is nothing difficult to understand here, if we recall that under the guise of any currency exchange office are present these same bid and ask. Buying rate and selling rate of exchange.
On the spread.
Spread - a primary source of income for your broker. It is the difference between buying and selling brokers are their main income. Spread size may vary within wide limits. It depends on the currency pair, market conditions, the transaction amount. When choosing a broker should consider the magnitude of his proposed spread. Too large a spread - a direct attempt to get into your pocket. Too small a spread - should alert as if the company significantly reduces the profit from the spread, you will have to compensate it from other sources, may not always be an honest way. In general, the answer to the question what is the optimal spread is difficult. The only advice is to choose a broker walk, look at what conditions exist at competing companies, and if something seems suspicious do not rush to take back the money. Gather as much information or just wait.But, something we digress.
Even so, I would say that the quote.
Quotation is a direct and indirect.Direct quotation - the number of national currency per unit of foreign currency.Indirect quotation - the amount of foreign currency per unit of national.For sure it came up especially for that would make a mess at the head of poor traders. For example, to quote the inhabitants of Russia RUB / USD is indirect, USD / RUB - straight. And what is for Russians quotation EUR / USD? It is clear that the Europeans - implied, for the Americans - a straight line. And for us? In general, the dwell on this, we will not, just take note of this fact.
On cross-rates.
Currency transactions in the Forex market are carried out not only to the dollar. The exchange rate between currencies without the dollar cross-rate call. Greatest importance and highest trading volumes have the following cross-rates: EUR / GBP, EUR / JPY, EUR / CHF, and others.
On the points.
In the first example we have assumed that the price has risen by 100 points. What is the point?Item (pips, point) - the minimum change in quotations. Most currencies are traded up to 0.0001. Ie quote change from 1.2510 to 1.2520 equals 10 points.Figure (big figure or figure) - quote change by 100 points.
On the orders.
Enter into transactions in the Forex market in two ways. You can wait for the moment when the quote reach the desired value and give the order to open or close a position broker manually (open or close the market). Or you can place an order - an order to buy and sell a currency at a pre-selected rate.In the second case, the broker will automatically execute your order as soon as the quotation reaches alleged in the warrant. This is very handy when you can not be near a computer but are afraid to miss an important movement of the course. You place an order and can go about their business, do everything for you broker.
Orders come in two types: stop (Stop-loss) and a limit order (Take-profit).Stop-loss order is intended to limit your loss to a certain level, in that case if the price has gone for you in an unfavorable direction. Stop order is placed on the less favorable rate than exists in the market at the time of order placement. It can also be used to capture part of the profit on open positions in the event of an adverse rate movement.
Example 2.
You have opened the position: Buy EUR / USD 100 000 at the rate of 1.2550 (ie, bought 100 000 euros for dollars at the rate of 1 euro for 1.2550 USD).After that, place an order: Stop loss sell 100,000 EUR / USD exchange rate 1.2510. Ie if the euro against the dollar starts to fall, at 1.2510 marks dotizhenii rate broker will automatically close your position at that rate, thereby limiting the loss of 40 points.
Limit order is used primarily to fix the profit and exposed to more favorable rate than exists in the market at the time of order placement.
Example 3.
You have opened the position: Buy EUR / USD 100 000 at the rate of 1.2550 (ie, bought 100 000 euros for dollars at the rate of 1 euro for 1.2550 USD).After that, place an order: Take profit sell 100,000 EUR / USD exchange rate 1.2595. Ie if 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 rate on the market reaches a specified value in the warrant.
Stop orders can be executed in different ways at different brokers.One option: execute an order in that exact course in it, when the rate reached the market. Second choice: the order is executed at this quote, the next (in time) for the specified in the warrant - this quote may differ from the ordered several items. This phenomenon is called Slippage (slippage). Of course, the trader is more profitable for the first option, when orders are executed exactly at a specified rate.If a stop order on a weekend and there have been major developments affecting the exchange rates, the rates of market opening may differ from the closing rate, and stop orders can be filled with a large slip - a few tens or even hundreds of items.By placing an order, we must remember that buy orders are executed when the market price of purchase (Offer), rather than sales (Bid), reaches a specified value in the warrant.
It should be understood that the order is placed is not directly related to an open position. For example, if an order was placed to close the position, but then the position has been closed manually before the execution of a warrant, the warrant is still valid and if it works, it will open a new position. Therefore, we must be mindful of placing orders, monitor their execution time and cancel unnecessary.
Open position.
Open position - a condition where the trader is at risk of deposit from changes in exchange rates. If you are buying - is said to be open long position when selling - open short position. Prior to that time when the position is closed, you're in the market.
Theoretically, you can keep an open position arbitrarily long time, unless, of course, allows you to deposit. But if at the end of the day the position is not closed, then the obligation is transferred to an open position on the next day (Roll-over). It looks like this: at the end of the day your broker makes two opposite direction of the transaction with your position, closes and immediately reopens it at the existing exchange rate at that time (you do not pay the spread), but with the new valuation date, taking into account the difference of interest rates between these currencies.Depending on the direction of the position (Buy or Sell) you receive or pay a certain sum for the transfer of positions (from a few tenths of points to several points). When the position is moved from Friday to Monday, this amount increased by approximately threefold.
Why do you pay or receive for the rollover?
Because when the transaction you will receive credit in the currency you are selling, and must pay interest. At the same time you place a deposit on the purchased currency and should receive interest on this deposit. Interest rates on the currencies are different, so there is a difference, which is considered when moving positions. If you sell a currency with high interest rate, you'll pay for the rollover. If you bought a currency with a higher interest rate, the broker will pay you for the rollover.As mentioned above, as long as you have an open position your trading account is subject to change. During this period, he may increase or decrease, constantly changing. Trading account the presence of open positions is also called floating or ekyuti (Equty).Ekyuti - is the real thing, that's your second deposit at this time, this value will be your deposit if you immediately close all positions. Obviously, if there are no open positions, is ekyuti deposit.
Closing.
Closing a position - a step no less, and maybe even more important and significant than the discovery of this. Opening a position, you expect a favorable change in the exchange rate and profit-closing position sums up to your expectations and entail the completion of the transaction. That's when you close the position you get to your trading account profit and loss.
Since the same and when closed?
Properly close the position - this means the optimum profit or minimum loss. The method and time of closing the position must be designated in the planning phase of the transaction. You must accurately represent themselves to the point at which, for any scenario, to finish the way out of the market. The expectation that the "first get involved in a fight, but we'll see," usually leads to sad consequences for your deposit. One option position is closed - set of orders (stop-loss and take-profit). It is believed that the installation of a profit shortfall in orders leads to profits. You are already closed, and the rate continues to move to the desired direction. What would prevent this from happening, you can use the method of "compression of profit", ie Profit transfer orders for a certain number of points to the current price movement during the course. Or use the so-called "Trailing stop" (traling-stop). That fits him best, everyone is free to decide.
Set the same stop-loss, in my opinion, the action is not merely useful but necessary. Stop-loss order - an order, swallowed part of a (sometimes substantial) of your deposit and throws you out of the market, but preserves the opportunity for you to continue to trade in the future. It's like a lizard's tail lays aside, something to keep my head. It is important that the stop loss should be installed correctly. Do not get too close (otherwise always be triggered), and not too far away (do not lose much of the deposit).
Calculating the closing position purely subjective thing and depends primarily on your trading strategy (about trading strategies, indicators, market analysis will be discussed in the section "Methods of Forex trading").
APPENDIX
The main currency market Forex.
USD - U.S. Dollar
EUR - International European currency, the euro
AUD - Australian Dollar
NZD - novozenlandsky dollar
GBP = Pound
CHF = Swiss franc
JPY = YEN JPY
First some theory.
Forex - is the international OTC market currencies. The market in which every day are carried out foreign exchange operations on hundreds of billions of dollars. And as in every market in the Forex market, there are buyers and sellers (operators Forex). Buyers come to the market for what would buy a quantity of goods (in this case the currency), vendors for what would sell. The deal concluded between the buyer and seller in Forex is called - the transaction.
As noted, the parties (operators) of the Forex market - it's central banks, commercial banks, investment companies, etc. Estesstvenno, the amount of transactions (transactions), they have enormous reach, by the standards of the average person size. The minimum prize amount is usually about $ 1 million. So how to get small investor in the company of these financial monsters?
About brokers.
It turns out that it is very easy. Use the services of an intermediary - a broker. Brokerages and brokers are the link between market operators and private investor, which allows the latter to enter the currency market and make it purchases and sales of currencies. Mediation services may provide a specialized brokerage companies and commercial banks themselves. Let's say a company comes to the notorious Bob navel and declares that passion as he wants to trade on the Forex market. "There is nothing easier - respond to him - make a contract with us on brokerage services, open an account, make the premium and forward to the top of the market." "What - a premium?-Bob is surprised - this is for what?".
Which requires premium? Or the principles of marginal trading.
As you know, for what would sell something unnecessary, you first need to buy something unnecessary. And vice versa. Vicious circle, in general, obtained. But this is the case, if there is no initial capital. If there is at least some starting amount, the task much easier.Before deciding to trade you must open an account with your broker or bank and transfer it to a certain amount (margin), whose value depends on the terms of service and may range from 100 to 10 000 thousand dollars. This is your deposit, capital and fixed assets, with which you will make money. At the same time, your deposit will be, and insurance fee, which will not allow the broker to obtain loss on your trade.
How well it works.
Let's say you put on your deposit U.S. $ 1,000. Of course come up with such a sum in the currency market work for your broker's hopeless. Well, not interested in Forex operators, this trifle. Arbitrarily long time to shake your broker will be bunch of dollars under the nose of the potential buyers, the effect will be zero. "So, what do I do? - Ask Bob Pupkov - I have no more." Here, in this case and given credit for Vasey (leverage or leverage) with which 1000 dollars increased by tens or hundreds of times. Different brokerage firms leverage varies. Usually it ranges from 10 to 100. Ie your 1000 dollars is converted into 10 000 or 100 000. This is the amount you'll manage. You are not obliged to work for the whole amount at once. Forex trading uses lots (lot). Minimum lot size is usually 10 000.
Of course, you can not withdraw that amount from his account, put in your pocket and get lost in the vast expanses of the homeland. This loan is highly targeted and send it only to buy or sell currency. And after the completion of the transaction you must return it in its entirety to your lender. And what will you? You will need your deposit and profit from the transaction.
Example 1.
Your deposit 1000 USD, a leverage of 1:100. Maximum lot with 100 000 USD (1000 USD * 100).You make a deal to purchase (buy) EUR USD maximum per lot.At the time of purchase EUR (open position) is equal to the rate of 1.2500 USD per 1 EUR. Over 100 000 USD you get 80 000 EUR (100 000:1.2500) expectation that the euro will rise. During the day, the euro has risen by 100 points (a very real situation) and by the end of the day is 1.2600 USD per 1 EUR.Do you sell (sell): 80 000 EUR for USD (closing position) and get 100 800 USD (80 000 * 1.2600).100 000 USD you return to your lender, but 800 USD is credited to your deposit. Therefore, your deposit at the end of the day is 1800 USD. Everything.
Well, this is what concerns profit. And if the price has gone not to the desired direction, then what?
Suppose the euro was not to grow, and fall against the dollar. In this case, your broker is forced to close your position as soon as the size of the loss will amount to 1000 dollars (the amount of your deposit). Your account nulled, and the broker will be in his way. Of course, you can close your position at any time, without waiting for reset the account and minimize damage or to place an order to close (stop-loss). On orders, we'll talk about below.This is the simplest example of a transaction on the forex market.
It is easy to see that the transaction consists of two parts:1. Opening position.2. Closing.Each opening and closing position entails order your broker to buy or sell a specific amount of a currency, for a certain amount of another currency. Consequently, the currency on the forex market are always traded in pairs. One of a pair of currency is called the base (or quoted), the second quote. The base currency is always paired in the first place.For example, in the EUR / USD base currency is the euro. In the pair USD / CHF Base currency is the U.S. dollar.
About quotes.
Quotes - the cost of a unit of one currency (base), expressed in units of another currency (the quote). Quotes consists of two numbers. In the first example for ease of understanding, we used only one of them, but the real work you'll use two. The first figure - the bid (bid) - the price at which you can sell the base currency, the second - ASK (ask or offer) - the price for which you can buy the base currency for quoted.
For example EUR / USD bid: 1.2510 ask: 1.2515. The difference between bid and ask price is called the spread (spread). There is nothing difficult to understand here, if we recall that under the guise of any currency exchange office are present these same bid and ask. Buying rate and selling rate of exchange.
On the spread.
Spread - a primary source of income for your broker. It is the difference between buying and selling brokers are their main income. Spread size may vary within wide limits. It depends on the currency pair, market conditions, the transaction amount. When choosing a broker should consider the magnitude of his proposed spread. Too large a spread - a direct attempt to get into your pocket. Too small a spread - should alert as if the company significantly reduces the profit from the spread, you will have to compensate it from other sources, may not always be an honest way. In general, the answer to the question what is the optimal spread is difficult. The only advice is to choose a broker walk, look at what conditions exist at competing companies, and if something seems suspicious do not rush to take back the money. Gather as much information or just wait.But, something we digress.
Even so, I would say that the quote.
Quotation is a direct and indirect.Direct quotation - the number of national currency per unit of foreign currency.Indirect quotation - the amount of foreign currency per unit of national.For sure it came up especially for that would make a mess at the head of poor traders. For example, to quote the inhabitants of Russia RUB / USD is indirect, USD / RUB - straight. And what is for Russians quotation EUR / USD? It is clear that the Europeans - implied, for the Americans - a straight line. And for us? In general, the dwell on this, we will not, just take note of this fact.
On cross-rates.
Currency transactions in the Forex market are carried out not only to the dollar. The exchange rate between currencies without the dollar cross-rate call. Greatest importance and highest trading volumes have the following cross-rates: EUR / GBP, EUR / JPY, EUR / CHF, and others.
On the points.
In the first example we have assumed that the price has risen by 100 points. What is the point?Item (pips, point) - the minimum change in quotations. Most currencies are traded up to 0.0001. Ie quote change from 1.2510 to 1.2520 equals 10 points.Figure (big figure or figure) - quote change by 100 points.
On the orders.
Enter into transactions in the Forex market in two ways. You can wait for the moment when the quote reach the desired value and give the order to open or close a position broker manually (open or close the market). Or you can place an order - an order to buy and sell a currency at a pre-selected rate.In the second case, the broker will automatically execute your order as soon as the quotation reaches alleged in the warrant. This is very handy when you can not be near a computer but are afraid to miss an important movement of the course. You place an order and can go about their business, do everything for you broker.
Orders come in two types: stop (Stop-loss) and a limit order (Take-profit).Stop-loss order is intended to limit your loss to a certain level, in that case if the price has gone for you in an unfavorable direction. Stop order is placed on the less favorable rate than exists in the market at the time of order placement. It can also be used to capture part of the profit on open positions in the event of an adverse rate movement.
Example 2.
You have opened the position: Buy EUR / USD 100 000 at the rate of 1.2550 (ie, bought 100 000 euros for dollars at the rate of 1 euro for 1.2550 USD).After that, place an order: Stop loss sell 100,000 EUR / USD exchange rate 1.2510. Ie if the euro against the dollar starts to fall, at 1.2510 marks dotizhenii rate broker will automatically close your position at that rate, thereby limiting the loss of 40 points.
Limit order is used primarily to fix the profit and exposed to more favorable rate than exists in the market at the time of order placement.
Example 3.
You have opened the position: Buy EUR / USD 100 000 at the rate of 1.2550 (ie, bought 100 000 euros for dollars at the rate of 1 euro for 1.2550 USD).After that, place an order: Take profit sell 100,000 EUR / USD exchange rate 1.2595. Ie if 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 rate on the market reaches a specified value in the warrant.
Stop orders can be executed in different ways at different brokers.One option: execute an order in that exact course in it, when the rate reached the market. Second choice: the order is executed at this quote, the next (in time) for the specified in the warrant - this quote may differ from the ordered several items. This phenomenon is called Slippage (slippage). Of course, the trader is more profitable for the first option, when orders are executed exactly at a specified rate.If a stop order on a weekend and there have been major developments affecting the exchange rates, the rates of market opening may differ from the closing rate, and stop orders can be filled with a large slip - a few tens or even hundreds of items.By placing an order, we must remember that buy orders are executed when the market price of purchase (Offer), rather than sales (Bid), reaches a specified value in the warrant.
It should be understood that the order is placed is not directly related to an open position. For example, if an order was placed to close the position, but then the position has been closed manually before the execution of a warrant, the warrant is still valid and if it works, it will open a new position. Therefore, we must be mindful of placing orders, monitor their execution time and cancel unnecessary.
Open position.
Open position - a condition where the trader is at risk of deposit from changes in exchange rates. If you are buying - is said to be open long position when selling - open short position. Prior to that time when the position is closed, you're in the market.
Theoretically, you can keep an open position arbitrarily long time, unless, of course, allows you to deposit. But if at the end of the day the position is not closed, then the obligation is transferred to an open position on the next day (Roll-over). It looks like this: at the end of the day your broker makes two opposite direction of the transaction with your position, closes and immediately reopens it at the existing exchange rate at that time (you do not pay the spread), but with the new valuation date, taking into account the difference of interest rates between these currencies.Depending on the direction of the position (Buy or Sell) you receive or pay a certain sum for the transfer of positions (from a few tenths of points to several points). When the position is moved from Friday to Monday, this amount increased by approximately threefold.
Why do you pay or receive for the rollover?
Because when the transaction you will receive credit in the currency you are selling, and must pay interest. At the same time you place a deposit on the purchased currency and should receive interest on this deposit. Interest rates on the currencies are different, so there is a difference, which is considered when moving positions. If you sell a currency with high interest rate, you'll pay for the rollover. If you bought a currency with a higher interest rate, the broker will pay you for the rollover.As mentioned above, as long as you have an open position your trading account is subject to change. During this period, he may increase or decrease, constantly changing. Trading account the presence of open positions is also called floating or ekyuti (Equty).Ekyuti - is the real thing, that's your second deposit at this time, this value will be your deposit if you immediately close all positions. Obviously, if there are no open positions, is ekyuti deposit.
Closing.
Closing a position - a step no less, and maybe even more important and significant than the discovery of this. Opening a position, you expect a favorable change in the exchange rate and profit-closing position sums up to your expectations and entail the completion of the transaction. That's when you close the position you get to your trading account profit and loss.
Since the same and when closed?
Properly close the position - this means the optimum profit or minimum loss. The method and time of closing the position must be designated in the planning phase of the transaction. You must accurately represent themselves to the point at which, for any scenario, to finish the way out of the market. The expectation that the "first get involved in a fight, but we'll see," usually leads to sad consequences for your deposit. One option position is closed - set of orders (stop-loss and take-profit). It is believed that the installation of a profit shortfall in orders leads to profits. You are already closed, and the rate continues to move to the desired direction. What would prevent this from happening, you can use the method of "compression of profit", ie Profit transfer orders for a certain number of points to the current price movement during the course. Or use the so-called "Trailing stop" (traling-stop). That fits him best, everyone is free to decide.
Set the same stop-loss, in my opinion, the action is not merely useful but necessary. Stop-loss order - an order, swallowed part of a (sometimes substantial) of your deposit and throws you out of the market, but preserves the opportunity for you to continue to trade in the future. It's like a lizard's tail lays aside, something to keep my head. It is important that the stop loss should be installed correctly. Do not get too close (otherwise always be triggered), and not too far away (do not lose much of the deposit).
Calculating the closing position purely subjective thing and depends primarily on your trading strategy (about trading strategies, indicators, market analysis will be discussed in the section "Methods of Forex trading").
APPENDIX
The main currency market Forex.
USD - U.S. Dollar
EUR - International European currency, the euro
AUD - Australian Dollar
NZD - novozenlandsky dollar
GBP = Pound
CHF = Swiss franc
JPY = YEN JPY
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