The Currency Trading Zone

How to Consistently Make Money with Forex ?

Forex, the principle is simple, you buy or sell a currency you hoping that the price will move in the right direction. If you buy the Euro, you hope that the euro appreciates. Thus, you realize a gain, since you sold your euros more expensive than the price at which you bought. The principle is the same as the market share. There is one important difference. Forex, a currency is traded against another currency. This is called exchange rate. It indicates the amount needed some money to buy a unit of another currency. It is the evolution of this report you will make a gain or loss. As for the EUR / USD, if the exchange rate is 1.20, this means only 1 euro, you get $ 1.20.

Read a quotation
As you have seen before, the currencies are always quoted in relation to another currency. This is called a currency pair (EUR / USD, USD / CHF ….). Both currencies are linked and then perform an operation on a currency back to the reverse on the other currency. Buy EUR is tantamount to sell USD.

Let the above example (a purchase of 1000 to EUR exchange rate 1.20). When you perform this operation, you must actually pay $ 1.20 for 1 euro. Your account will be debited from USD 1200 for 1000 EUR. If you want to sell the EUR, then the reverse. You must pay 1000 EUR for 1200 USD.

As you can see, a quotation is submitted and Forex: EUR / USD.
Money leftmost (here CDN), is called the base currency or domestic. It will be the basis either for a purchase or sale. The U.S. dollar is the currency traded him or foreign currency. So, just to say I buy the EUR / USD. This means that you want to buy the EUR.

However, there are two types of quotations, direct and indirect. In a direct quotation, which is the case for most countries, the base currency is the domestic currency. This applies to the EUR. In indirect quotation, as the United States, the base currency is the foreign currency. For this reason the EUR / USD will always appear that way, even if you are in the United States.

Spread

ll Forex quotes are broken down as follows:

1. An offer (bid) price at which you can sell
2. A request (ask) price at which you can buy

Prices vary continuously Forex but in all cases, the offer is still below demand price. The difference between the two prices is what is called the spread.

Mostly, they are market makers that provide a supply and demand in different pairs.
The offer is thus the price at which the market maker is willing to buy the base currency in exchange traded currency. For you is the price you can sell the base currency.
The request to the contrary, corresponds to the price at which the market maker is willing to sell the base currency in exchange traded currency. For you is the price you can buy the base currency.

Long / Short

Now that the ratings have no secret for you, here are two words you hear if you regularly trade on the Forex.

Take a long position or be long, means that it has purchased. In the case of the EUR / USD be long on this pair means that you bought the EUR / USD (bought the base currency EUR).

Take a short position or be short, that means it has sold. In the case of the EUR / USD be short on this pair means that you sold the EUR / USD (sold the base currency EUR)

Case study
A small example now …
You think the U.S. economy will collapse in the coming months. What are you doing?
You buy or sell the EUR / USD?? If you answered “purchase”, you all good! Indeed, if the U.S. goes into recession, the U.S. dollar will depreciate against the EUR. The exchange rate EUR / USD will therefore rise. The EUR will appreciate in value against the USD and EUR will be worth a larger amount of USD.

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This entry was posted on Monday, September 21st, 2009 at 11:06 pm and is filed under Currency Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.