Forex for beginners
1. The purpose of trafficking
The purpose of trading in any market — to buy goods cheaper and sell more expensive. Is no exception and the foreign exchange market — Forex. Goods in this market are the currencies of different countries. Like any other commodity currencies have their price.
To make settlements between partners located in various countries, international payments, speculative transactions, etc., banks around the world in the Forex market make foreign exchange transactions. Depending on a variety of commercial, economic and other indicators, interest rates, central bank policies, time of day, preferences and expectations of the stock market game, from a variety of different reasons mutual quotations ie prices of currencies, are in constant motion.
The task of the trader — to try to determine the direction of the price change and the currency to buy the currency, the price of which increased, or to sell the currency, the price of which falls, and then make a return transaction, make a profit.
Our Dealing Room offers you the opportunity to work with a software package AFM (Akmos FOREX Master), with which you live get currency quotes of various banks and the world’s largest exchanges — market participants Forex. At the same time you have plotted the changes of the current price of each currency, as well as the incoming fresh economic news, which directly or indirectly affect or may affect in the future currency quotes. For more information you can read the AFM, reading the user manual.
And finally, you have a special live trading account, allowing you to buy and sell the currency of your choice. At the same time, although on your trading account are US dollars, you can start its activities with the sale of the euro, yen and other tools without worrying about what you do not buy them.
2. Designation of currencies
Each currency is assigned a three-letter code. For example, the code for the US dollar — USD (United States Dollar), code of the euro — EUR (EURo), Swiss Franc — CHF (Confederation Helvetica Franc), the Japanese yen — JPY (JaPanese Yen), the British pound — GBP (Great British Pound). Currency codes are defined by standard ISO-4217. Typically, they are formed from the two-letter ISO-3166 country code and the first letter of the currency. Exceptions to the rules a little bit, in particular, the European currency euro, which is denoted as the EUR, and the ruble designated RUB, instead of RUR, would be expected to.
Exchange rates show the ratio of currency units of different countries against each other. Codes courses presented 6-letter words composed of two three-letter currency codes. In the first place, as a rule, the code is more meaningful exchange. Quotes are expressed in units of the second currency per unit of the first. For example, quotes USDCHF (USD-CHF) show the number of Swiss Francs per US dollar, but rates GBPUSD (GBP-USD), on the contrary, show how many dollars should pay for one British pound. For more information on codes of financial instruments can be found in the relevant table.
3. How to read quotes
Quotes are usually expressed in terms of five-digit number. For example, USDJPY = 114.90 means that one US dollar is estimated at 114.90 Japanese yen (ie $ 1 willing to pay as much yen when buying or selling). At the same time, GBPUSD = 2.0252 means that 1 British pound is estimated at 2.0252 dollar. In general, if the quote XXXYYY = Z, this means that for one unit XXX YYY give Z units.
When the quote is changed, for example, USDJPY = 114.92 to USDJPY = 114.93 and GBPUSD = 2.0254 to 2.0255, saying that the price has changed by 1 point. Previously it said that in this example the yen fell by 1 point, and the pound has risen in price by 1 point.
It follows that only the graphics euro (EURUSD) and British pound (GBPUSD), ie Currency with «feedback» quotation reflects the actual movement of prices (ie, the graph up — the price is higher), and growth (ie, motion graphics up) for USDJPY and USDCHF (the currency with «straight» quotation) is not increasing and lowering their quotations (prices).
4. Prices BID and ASK
As you know, every transaction is made at a well-defined and specific price, while the table Quote Spread Sheet for each currency coming three prices, for example:
Each of the participants of the Forex market for each specific transaction is acting as a currency or seller, or buyer. This seller offers the currency more expensive, for example, GBPUSD at 2.0254, and the buyer asks the currency cheaper, for example, GBPUSD at 2.0250. Accordingly, the offer price Seller called ASK, and the price the buyer — BID. Therefore, if you assume that GBPUSD will go up (on your graph the curve GBPUSD goes up), you decide to buy a pound, while it is cheaper, in order to sell more expensive. Buy (this is called BUY) only from a seller who will offer it at a price ASK. When you sell a pound (the sale is called SELL), the buyer will offer for its price at BID (this is true for all currencies). Hence it is apparent that if you open a position (the operation is called — OPEN), ie did BUY GBPUSD, and then want to close it (the operation is called CLOSE), ie sell just bought pounds, you can only do so at a loss, in the same way as it would in any exchange office. Consequently, that you have made a profit, the price of the currency to be held in the intended direction you more than the difference between BID and ASK. The third number is called LAST — the Forex market is the mean value between the last BID and ASK.
As stated in Section 3, only a direct quote currency become more expensive as you move up on the chart. Obviously, the rule that the operation BUY, profitable in moving up for some currencies and a loss for the other, will cause inconvenience. Therefore, when performing BUY for currencies with a direct quotation, not the purchased currency and the US dollar, the currency of sale itself. For example, BUY USDCHF at 1.1724 quotation buys $ 100,000 of 117.240 Swiss francs. Thus, the operation BUY always makes a profit when the chart up and SELL — when the chart down.
In summary, OPEN BUY (up) comes at the price of ASK, a CLOSE — the price BID; OPEN SELL (down) — the price BID, and CLOSE — at the price of ASK.
Sometimes there are shown a pair of quotes, such as 114.88 / 92. This notation denotes a pair BID / ASK. First recorded value of BID, and then the last two digits quotes ASK. Knowing that ASK more than BID, and the difference between them is less than 100 points, always possible to determine the value of the second quotation. In this case, ASK = 114.92.
5. Orders the STOP LIMIT
Now, look at useful trading tools allowing to some extent protect you against unforeseen losses and record the planned profit.
It — STOP and LIMIT. In the previously open position at any time (during opening hours of the market) can be instructed to put it to close when the price of a particular currency values. For example, you open a position, hoping that the quotes go up (on the schedule). At the same time, to hedge against significant loss with a significant movement of the currency down, especially in a situation where you can not control or lose control of the market, you put STOP, ie You specify the value of the price below its current value at which your position should be closed without further guidance. Similarly, if you are open down, you specify a price above its current value. At the same time you should keep in mind that if STOP will stand too close to the current value, the random bounce rates can close with a loss correctly open position, and if too far away — losses can be unreasonably high. In turn LIMIT — you said this quote, above which the position will be closed at a profit, that is, quotation on LIMIT — is always higher than the current value if you play up, and below — if you play down.
There is a very common mistake that almost all new traders. Always keep in mind for any quotation — BID or ASK warrant must be executed. Consider the example of a position BUY. As stated above, BUY position opened by ASK, and is closed at BID. Ie STOP or LIMIT will be executed only when the price specified BID reach. Since ASK on the graph is always higher than the BID, the schedule is always HIGH ASK, and LOW — BID. Therefore, the schedule has to pass the value of LIMIT spread before LIMIT will be executed. A STOP is likely to be executed as soon as the schedule will affect the price. Normally, novice traders are surprised when they discover that their LIMIT did not work, despite the fact that the HIGH schedule a few points higher than the price LIMIT’a. So it should be, because HIGH must be higher than LIMIT is less than the value of the spread.