To make a profit, in the FOREX, a trader can enter the market as a *buy position* (known as going "long") or a *sell position*(known as going "short").
For discussion, let's assume you've been studying the EURO.
Your trading methods, rules, strategies, etc., tell you that prices will rise during a particular timeframe. So you buy the EUR/USD pair (or, technically, you will simultaneously buy euros, the base currency, and sell dollars).
You open up your handy trading station software (provided to you for free by the online broker), which resides on your desktop, and you see that the EUR/USD pair is trading at:
>
REMEMBER: the quote to the left of the / (1.3242) refers to the bid or "sell" price (what you obtain in USD when you sell EUR). The quote to the right of the / (1.3245) is used to obtain the ask or "buy" price (what you have to pay in USD if you buy EUR).
So, since you believe that the market price for the EUR/USD pair will go higher, you will enter a *buy position* in the market. For simplicities sake, let's say you bought one lot at 1.3245. As long as you sell back the pair at a higher price, then you make money.
But, no worries. This seemingly elaborate process is handled, and even calculated for you, via the broker's software mentioned above. The chart software and the quote board are in agreement with all sides of the currencies.
To illustrate a typical FX SELL trade, consider this scenario involving the USD/JPY currency pair:
REMEMBER ~ Selling ("going short") the currency pair implies selling the first, base currency, and buying the second, quote currency. You sell the currency pair if you believe the base currency (USD) will go down relative to the quote currency (JPY), or equivalently, that the quote currency (JPY) will go up relative to the base currency (USD).
NOTE: while the Profit Calculations, on the Short-sell trade scenario below, may seem somewhat complicated if you've never been in the FOREX market before, trust us when we say, "this process is nearly seamless through your broker trade station (software). We're just showing you this thought-process below so you can SEE how a PROFIT occurs even when
SELLING a currency pair.
The current bid/ask price for USD/JPY is 105.26/105.30, meaning you can buy $1 US for 105.30 Japanese YEN or sell $1 US for 105.26 YEN.
Suppose you decide that the US Dollar (USD) is overvalued against the YEN (JPY). To execute this strategy, you would sell Dollars (simultaneously buying YEN), and then wait for the exchange rate to rise.
So you make the trade: selling US $100,000 and purchasing 10,526,000 YEN. (Remember, at 1% margin, your initial margin deposit would be $1,000.)
As you expected, USD/JPY falls to 104.26/104.30, meaning you can now buy $1 US for $104.30 Japanese YEN or sell $1 US for 104.26
Since you're short dollars (and are long YEN), you must now buy dollars and sell back the YEN to realize any profit.
You buy US $100,000 at the current USD/JPY rate of 104.30, and receive 10,430,000 YEN. Since you originally bought(paid for) 10,526,000 YEN, your profit is 96,000 YEN.
To calculate your P&L in terms of US dollars, simply divide 96,000 by the current USD/JPY rate of 104.30.
Total profit = US $920.42
Omar Vargas is a freelance writer with articles published in a number of places. You can learn more about Forex trading and its great advantages over other kind of business at this useful website: http://www.1-forex.com
Discretionary TradingPure discretionary trading will rely solely on the traders... Read More
Forex option brokers can generally be divided into two separate... Read More
The exchange rate of the Macedonian Denar against the major... Read More
The simplest definition of currency trading is the practice of... Read More
Could it be possible that you are staring right into... Read More
FOREX is the abbreviation for the Foreign Exchange market. FOREX... Read More
One way to acquire discipline in trading..."Hey Joe! When you... Read More
An online forex broker is a firm that facilitates retail... Read More
QUESTION: If the SP futures fall through support and go... Read More
RULE #1) ~ Cut your losers; let your winners ride.One... Read More
Most traders use a FOREX broker to handle their transactions.... Read More
The essence of the FX2u Forex strategy is that it... Read More
FOREX is the world's largest and most liquid trading market.... Read More
The Foreign Exchange Market ? better known as FOREX -... Read More
Everyone trades a little differently. The trading method outlined below... Read More
The recent upheavals in the world financial markets were quelled... Read More
Q1: When you consider that the foreign exchange market has... Read More
When day trading the SP and Nasdaq futures, do you... Read More
Cut your losses short and let your profits run. This... Read More
If you ask me whether the market will have moved... Read More
Most new traders tend to focus just about all their... Read More
All professional traders have a trading plan. Trading futures is... Read More
Below I will describe three basic principles that may come... Read More
Most traders tend to concentrate on pinpointing the perfect entry... Read More
Profitable day traders recognize that momentum trading is among the... Read More
Indeed large multinational and individual banks and other major financial... Read More
In recent years, investors have witnessed increased number of investment... Read More
There are many advantages to Trading FOREX as your main... Read More
International commerce has rapidly increased as the internet has provided... Read More
Which way will the forex market move? Do you just... Read More
Forex, or Foreign Exchange, is the simultaneous exchange of one... Read More
FEARING LOSSESThere is a huge difference between being risk averse... Read More
Foreign exchange currency trading is also known as Forex trading,... Read More
Currencies are traded in dollar amounts called "lots". At 100:1... Read More
During my first year as a local (independent trader) on... Read More
What is Options Trading?An option is simply granting someone the... Read More
I remember the first time I started to trade online.... Read More
There is one aspect that is considered as one of... Read More
What Is Commodity Trading?Commodity futures markets allow commercial producers and... Read More
When day trading the SP and Nasdaq futures, do you... Read More
Indeed large multinational and individual banks and other major financial... Read More
The psychological aspect of trading is usually underestimated by those... Read More
Currencies are traded in dollar amounts called "lots". One lot... Read More
The base unit for the renminbi is the yuan, which... Read More
There are many types of investment methodology out there. All... Read More
Momentum day trading can be extremely profitable when done correctly...Day... Read More
What is Stocks Trading?Companies throughout the world issue new stock... Read More
There is an old saying that the market is driven... Read More
What Is Online Futures Trading?A futures contract is an agreement... Read More
What is Forex Trading?Forex, or Foreign Exchange, is the simultaneous... Read More
You may be asking yourself "how does one begin to... Read More
FOREX is the world's largest and most liquid trading market.... Read More
Long TermLong term traders will work from end of day... Read More
The European Union (EU) constitution was dealt a double blow,... Read More
What are Forex signals? Forex signals are paid services offered... Read More
You know the old joke:"How do you make a million... Read More
IntroductionThe exchange rate refers to the value of the US... Read More
The exchange rate of the Macedonian Denar against the major... Read More
There are some common mistakes I've seen traders make in... Read More
Below I will describe three basic principles that may come... Read More
Are you thinking of entering the fast-paced world of day... Read More
Could it be possible that you are staring right into... Read More
Since the US dollar is the centerpiece of the market,... Read More
The foreign exchange currency market is the largest market in... Read More
Forex trading online is a fast way to use your... Read More
"FX" is an abbreviation of "forex" or "foreign exchange." Foreign... Read More
Currency Trading |