What is the process of quoting Currencies and what is the impact on each currency?
One of the most significant benefits of FOREX Trading is
The amount you must put into the trade (known in the industry as “margin”) can be the only thing that is at risk !
You must be aware that, despite the massive leverage offered by certain Forex brokers, they are not able to offer leverage that is greater than (400:1) which means that when you deposit $ 1000, the broker will permit you to trade as though you own $400.000).
Trading In The Forex Market
The Forex market is less risky in comparison to Stock or Futures Trading, where you could lose more than the money you’ve put in your account.
This kind of LEVERAGE DOES NOT exist in the equities or the futures market
When it comes to markets like the Equities as well as Futures markets, frequently drastic and sudden movements take place, against which you aren’t able to defend yourself even if you have set your stops that are protected.
Your account could be sold at the loss and you’ll be responsible for any deficit that results on your account.
Because of the FX market’s high liquidity and constant, 24-hour trading, risky gaps in trading and limit-moves are almost completely eliminated.
Orders are completed promptly, without delay, and without any slippage or incomplete fills. Finally there are no margin calls. To protect you the broker will shut down a portion or all your open positions when the equity in your account falls below the amount needed to keep the positions.
Think of it as an automatic, final stopper that works on your behalf to avoid the possibility of a balance on your debit card.
The currency is traded in dollar amounts , referred to as ” LOTS”
For Forex trading, which is the case with most Brokers, you can have the option of choosing between two different sizes of lots.
Mini Lots or Standard Lots
One Standard Lot is equivalent to $100,000 in dollars. For margins, when using the 400:1 leverage is US$250, in other words, you own 100,000 worth of currency, but just 250 US dollars.
If I deposit $250 to a broker, I could exchange 100,000dollars worth of currency ?
Be aware that the size of your account must be higher than the margin required that is US 250. For instance, if you make an order to purchase a Standard lot ( at 100,000) of USD/JPY, and USD/JPY is quoted at 112.10/112.13 If you purchase USD/JPY for 112.13.
Your balance in your account is $220 because you have paid 3 pip or $ 30 , for the trade.
If you want to close this transaction immediately then you must sell this with a price of 112.10 (the cost of the bid) and make an amount of $30.
In actual fact, you are unable to execute this transaction, since the trading platform of the broker will reject your request because of inadequate money in the account).
Your balance must be at least $280. $25 for margin, and $25 to trade.
However, ….IF you’ve initiated the trade to purchase USD/JPY at 112.13 If the USD/JPY is down the one pip ( roughly. $8) the position would be automatically closed because of the margin deficit.
I will go over the details later the need for a sufficient size account to trade on the Forex Market.
Currency exchanges are conducted in pairs within the FOREX. The pairs are distinguished by a distinctive note that identifies the currencies that are traded.
The symbol used to represent an exchange rate will always be ABC/DEF. ABC/DEF isn’t a real currency pair, but rather an example of a symbol that represents the currency pair. In this case, ABC represents the symbol of one currency while DEF can be the symbol of another country’s currency.
The most well-known symbols utilized to trade Forex are:
USD – – The US Dollar
EUR It is the currency used by European Union “EURO”
GBP is the British Pound, also known as cable
JPY – – The Japanese Yen
CHF The Swiss Franc
The Australian Dollar – The Australian Dollar
The CAD is the Canadian Dollar
There are other symbols for currencies too, but these are the most widely traded ones.
A currency is not able to be traded on its own. Therefore, you cannot ever trade the USD in isolation. It is necessary to buy one currency, and then SELL a different currency in order to make trades feasible.
The most frequently traded currency pairs are:
EUR/USD Euro against US Dollar
USD/JPY US Dollar against Japanese Yen
USD/GBP British Pound against US Dollar
USD/CAD US Dollar against Canadian Dollar
AUD/USD Australian Dollar against US Dollar
USD/CHF US Dollar against Swiss Franc
EUR/JPY Euro against Japanese Yen
The currency that is left after the / is known as the base currency.
The right to the currency counter currency.
When you make an order for the purchase of EUR/USD, as an example you’re actually purchasing USD and buying EUR as well as selling USD.
If you decided selling the currency pair then you’d be selling EUR and buying USD. If you decide to buy and sell the currency pair you are purchasing or selling the currency of base.
The most effective method of remembering is simply think of the whole currency pair as a single item.
If you decide to buy it…you purchase the currency you bought and then sell the second one. If you decide to sell it…you take the money from the initial currency and purchase another currency.
This means that you’ll be able to sell short without any restrictions so that you can earn profits when the market is down and also when it increases.
The issue in traditional stock market as well as commodity trading is that market needs to increase in order for you to earn money. With FOREX trading, you can earn money from all directions.