Trading activity in Forex trading gives an opportunity to trade in the change of value in the global monetary trade. The price of monetary units increases and also decreases according to the relationship between friend to friend, and also as a result of state and also international financial, economic and also socio-political actions.
In the presence of trading in Forex trading you acquire two monies, in case you think that the basic monetary unit will strengthen according to the relationship to the counter currency. Or in fact you realize the monetary two, in case you think that the base monetary unit will weaken according to the relationship to the counter currency.
Forex / Currency Trading Example 1: Buying EUR/USD
The EUR/USD pair is trading at 1.09140 / 1.09180.
You decided to buy 20,000 euros because you think that the price of EUR/USD will rise. The margin rate for EUR/USD is 0.5%, which means that you have to deposit only 0.5% of the total value of the position as a position margin. Thus, in this example, your position margin will be $109.16 (0.5% x [€20,000 x 1.09160]).
Remember that if the price moves against you, then you may lose more than your initial position margin of $109.16.
Outcome A: A winning deal
Your forecast turned out to be correct, and within the next hour the price rises to 1.09680 / 1.09720. You decide to close your long trade by selling it at 1.0968 (the current sale price).
The price has moved by 50 points (1.09180 – 1.09680) in your favor.
Your profit is ([€20,000 x 1.09180] – [€20,000 x 1.09680]) = $100.
Outcome B: A losing trade
Unfortunately, your forecast turned out to be incorrect, and the price of EUR/USD fell to 1.0868 / 1.0872 within the next hour. You feel that the price is likely to continue falling, so to limit your losses, you decide to sell at 1.0868 (the current selling price) to close the deal.
The price has moved by 50 points (1.0918 – 1.0868) against you.
Your losses are ([€20,000 x 1.09180] – [€20,000 x 1.08680]) = – $100.
Forex / Currency Trading Example 2: Selling EUR/USD
The EUR/USD pair is trading at 1.09140 / 1.09180.
Let’s assume that weak data on the German manufacturing sector indicate that the euro is likely to fall against the US dollar in the coming days. You decide to sell €20,000 because you think that the price of EUR/USD will decrease.
The margin rate for EUR/USD is 0.5%, which means that you need to deposit only 0.5% of the total position value as a position margin. Thus, in this example, your position margin will be $109.16 (0.5% x [€20,000 x 1.0916]).
Remember that if the price moves against you, then you may lose more than your initial position margin of $109.16.
Outcome A: A winning deal
Your forecast turned out to be correct, and within the next hour the EUR/USD rate drops to 1.08600 / 1.08640. You decide to close your short trade by buying at 1.08640 (the current purchase price).
The price has moved by 50 points (1.0914 – 1.0864) in your favor.
Your profit is ([€20,000 x 1.09140] – [€20,000 x 1.08640]) = $100.
Outcome B: A losing trade
Unfortunately, your forecast turned out to be incorrect, and the price of EUR/USD rises to 1.09600 / 1.09640 within the next hour. You think the price is likely to continue to rise, so to limit your losses, you decide to buy at 1.09640 (the current purchase price) to close the deal.
The price has moved 50 points (1.09140 – 1.09640) against you.
Your losses are ([€20,000 x 1.09140] – [€20,000 x 1.09640]) = – $100.
How to Trade in Forex
Forex exchange operates 24 minutes a day, 5 days a week in the largest economic centers of society. This means that it is possible to buy or sell a monetary unit in almost every period of the day.
In the past, trading activity in Forex trading was available only to governments, large firms and hedge funds. Now it is possible to trade in Forex with anyone. Almost all investment firms, banks and individual brokers give individuals the opportunity to open a lot of money and also trade in cash.
In the presence of trading in Forex trade you acquire or sell the currency unit of a particular state according to the relationship to other monetary units. However, the presence of this does not make physiological exchange of funds from one edge to another, as well as in the exchange place.
In the society of electric markets traders as a rule capture a transaction in a concrete monetary unit, counting that there will be a certain movement up and also influence of the monetary unit, which they acquire (or lack, in case they realize), and also they can acquire income.
A monetary unit is constantly traded relative to another monetary unit. In case you realize a monetary unit, you acquire another one, and in case you acquire a monetary unit, you realize another one. The income comes out in the difference between your transaction rates.
Holding costs
If you hold a position until 17:00 New York time (22:00 UK time), funds will be debited or credited from your account at the current retention rate. If you bought a currency with a higher yield, you can get interest; if you bought a currency with a lower yield, you can be charged interest.
