Forex Trading Money » currency exchange rate http://virtualmakemoney.com Forex Trading Money Tutorial Wed, 21 Jul 2010 10:35:09 +0000 en hourly 1 http://wordpress.org/?v=3.0 Forex Currency Pairs http://virtualmakemoney.com/forex-currency-pairs.html http://virtualmakemoney.com/forex-currency-pairs.html#comments Mon, 20 Jul 2009 18:07:50 +0000 admin http://virtualmakemoney.com/?p=118 Foreign Exchange Market (Forex) is the arena where a nation’s currency is exchanged for that of another at a mutually agreed rate. It was created in the 70′s when international trade transitioned from fixed to floating exchange rates, and nowadays is considered to be the largest financial market in the world because of its tremendous turnover.

Probability of earning on Forex is based on the fact that every national currency is a good, as well as wheat or sugar, and a medium of exchange, as gold or silver. As the world is changing so fast, economic conditions of every country (production, inflation, unemployment etc) are getting more and more dependant on each other, as a result, the rate of a currency changes against other currencies. This is the main reason of the process of rate fluctuations.

All currencies are traded in pairs and each is assigned with an abbreviation.
Table 1. Currency Abbreviations
Abbreviation Interpretation
EUR Euro
USD US Dollar
GBP British Pound
JPY Japanese Yen
CHF Swiss Franc
AUD Australian Dollar
CAD Canadian Dollar
NZD New Zealand Dollar
SEK Swedish Krona
DKK Danish Krone
NOK Norwegian Krone
SGD Singapore Dollar
ZAR South African Rand

Currency exchange rate is the rate at which currencies are exchanged one for another. For example, «EUR/USD exchange rate is 1.2505» means that one Euro is exchanged for 1.2505 US Dollars.

The exchange rate of any currency is usually given as the Bid price (left) and the Ask price (right). The Bid price represents what will be obtained in the quote currency (US Dollar in our example) when selling one unit of the base currency (Euro in our example). The Ask price represents what has to be paid in the quote currency (US Dollar in our example) to obtain one unit of the base currency (Euro in our example). The difference between the Bid and the Ask price is referred to as the spread.
Table 2. 1.0 lot size for different currency pairs
Currency pair↓ 1.0 lot size Necessary margin for 1 lot 1 pip size

EURUSD EUR 100,000 1000 EUR 0.0001
USDCHF USD 100,000 1000 USD 0.0001
GBPUSD GBP 100,000 1000 GBP 0.0001
USDJPY USD 100,000 1000 USD 0.01
AUDUSD AUD 100,000 1000 AUD 0.0001
USDCAD USD 100,000 1000 USD 0.0001
EURCHF EUR 100,000 1000 EUR 0.0001
EURJPY EUR 100,000 1000 EUR 0.01
EURGBP EUR 100,000 1000 EUR 0.0001
GBPJPY GBP 100,000 1000 GBP 0.01
GBPCHF GBP 100,000 1000 GBP 0.0001
EURCAD EUR 100,000 1000 EUR 0.0001
NZDUSD NZD 100,000 1000 NZD 0.0001
USDSEK USD 100,000 1000 USD 0.0001
USDDKK USD 100,000 1000 USD 0.0001
USDNOK USD 100,000 1000 USD 0.0001
USDSGD USD 100,000 1000 USD 0.0001
USDZAR USD 100,000 1000 USD 0.0001
CHFJPY CHF 100,000 1000 CHF 0.01

Let’s assume that exchange rate for EUR/USD is 1.2505/1.2509. You may have made market analysis and decide the EUR/USD rate is moving higher (at least to 1.2600). You buy 0.1 lot (minimum contract size) of EUR/USD at the 1.2509 (ask price). Table 1 will help you to define what the contract size is: i.e. 1.0 lot for EUR/USD is 100 000 EUR, then 0.1 lot (our contract size) is 10 000 EUR.

This means that you bought 10 000 EUR and sold 10 000×1.2509=12,509 USD. So, in order to make a deal you don’t have to sell total amount of 12.509 USD but 100 times less just $125.09. The rest sum of the money (in our example $12,383.91) is leveraged to you by a broker (a company you entered the contract with to enter the market).

Leverage is the term used to describe margin requirements: the ratio between the collateral and borrowed funds: 1:20, 1:40, 1:50, 1:100. Leverage 1:100 means then when you wish to open a new position, then you must have deposit 100 times less then the contract size.

So, you forecast that EUR/USD is moving higher and you buy 10.000 EUR and sell 12.509 USD. Assume you are right and EUR/USD reaches 1.2599/1.2603. You close the open position by the opposite one, in our example, you close short position (sell position) by long position (buy position), i.e. you sell 10.000 EUR (0.1 lot* 1.0 lot size for EUR/USD) and buy 12.599 USD:
Transaction EUR USD
Open a position — buy EUR and sell USD + 10,000 – 12,509
Close a position — sell EUR and buy USD – 10,000 + 12,599
Total: 0 + 90

You get a profit of 90 dollars. And you didn’t operate with 10.000 EUR ($12,509), but only $125. So, the profit is 90 pips. Pips or point is a minimal rate fluctuation. For EUR/USD 1 pips is 0.0001 of the price (see table 2). Our profit is 1.2599-1.2509=0.0090, i.e. 90 pips.

So, you invested $125 and take a profit of $90. The time period for this can take from 10 minutes to several days. But anyway to make profit of $90 for several hours isn’t a bad return at all. But be aware, that all this can work against you and magnify your losses. Only money management will help you to minimize the risks, moreover to reduce them to zero, and increase the return of your funds from 10% to 20-30% and higher per month.

One question is left: what is broker’s charge for the leverage he provides? If you open and close a position till 2:00 Moscow time, a broker provides the leverage for free. If you leave your position after 2:00 Moscow Time, he credits to your account or debits from you account a storage — charge for the overnight position. It can be both positive (credited to your account!) and negative (debited from your account). It depends on the interest rates in those counties which currencies you trade.

For example, ECB interest rate is 4.25%, FED interest rate is 3.5%. Assume, you have a short position on EUR/USD per 1.0 lot. You sell 100.000 EUR. This means you borrow them at 4,25% per annum. You sell euro and buy dollars, which can be deposited at 3.5% per annum. As a result, the costs are (4.25-3.5)% per annum or 937.5 dollars per year (if EUR/USD rate is 1.2500), or $2.57 per day. This means that your account will be debited on $2.57 everyday per one lot if you have a short position (selling position) on EUR/USD. And your account will be credited $2.57 everyday per one lot if you have a long position (buying position) on EUR/USD.

In practice the debited amount is a bit higher than 2.57%, and the credited amount is a bit lower than 2.57%. The difference goes to a broker as a payment for the rollover (see Contract Specification).

Incoming Forex terms:

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]]> http://virtualmakemoney.com/forex-currency-pairs.html/feed 3 Rollover in Forex Trading http://virtualmakemoney.com/rollover-in-forex-trading.html http://virtualmakemoney.com/rollover-in-forex-trading.html#comments Sun, 17 May 2009 19:58:01 +0000 admin http://virtualmakemoney.com/?p=58 In this article we discover another way of working from home on the Internet may not know that anything goes, but who want to have to learn to do it first.
Perhaps you heard about the term Rollover in Forex trading, also may not be familiar with its meaning. Frankly it is a very simple concept.

The terms indicate a rollover situation that occurs when an operation is extended beyond the closing hour of trading on any particular day.
This action can occur in different circumstances and will depend on which broker you are using for Forex trading.

The rollover occurs when an operation is moved to a new day and you must pay, or pay for the position you have in this operation, unquestionable interest.
When you take a position in the Forex market obviously is buying one currency and selling another.
No matter what the currency is, all are incorporated into Forex, you must sell to buy another one. Doing this, of course you are taking someone as a currency loan to buy or sell.

The details of this loan should not matter in depth to you as an operator, but what should worry them is the interest rate for the currencies involved.
All currency exchange rate is quite similar to the rate set by the central bank.
The disparity between the exchange rate of currency in the pair you are trading the making, is what defines whether you should pay or whether it must pay you at the end of the day in the currency market.
Generally it is important to know what he is paid the operator the difference between the exchange rates if you buy the currency with the greatest interest of the child and the venda. In the same way you are charged if you are selling the currency of interest.

In certain cases, be paid no matter which direction it takes on a currency pair. This occurs when, for example, with some pairs where the inequality in the exchange rate is so close that the margin between the two currencies do you need to pay either sold or bought.
In the case of many forex brokers and market makers in the United States, the time used for the rollover is when the end times of banks on the east coast.

Mandatory when banks are closed in New York, the rollover occurs and starts the next day. At that point you are charged or credited money, depending on your operation.
If you want to avoid this situation, all you have to do is close their positions before the rollover occurs.
The runners may leave the operation before the rollover occurs without charge or credit for that day. But some brokers have become a continuous calculation of the exchange rate and a charge or credit is based on how long it has maintained its position, whether the negotiation is conducted.

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