 |
Example of a Profitable Transaction in FOREX.
As it was mentioned earlier, there are TWO timeless rules of Investing in FOREX:
RULE #1) ~ Cut your losers; let your winners ride.
YOU WILL HAVE LOSING TRADES.
We do. Every FOREX trader does. The key to being a
consistent, predictable, reliable trader is to, at the end
of the day, add up more wins than losses. And, when you KNOW
(based off your trading rules), without a doubt, that YES,
indeed you are, in a losing trade, don't keep losing money
(lowering your stop loss) just to *prove you are right* or
your rules are wrong (however you want to look at it).
Let's face it - you can't turn a sow's ear into a silk
purse. You can't change the spots of a leopard and you can't
turn chicken poop into chicken salad. The best trades are
usually "right" immediately (the techniques, rules, methods
and strategies we teach at RapidForex.com will be your best
indicator for just what a "right" trade really is).
Remember, people have been trading the markets for a hundred
and sixty years. The smart traders know there's going to be
another trade. Cut your loses short and compound those
winning positions.
RULE #2) ~ Thou Shall Not Trade the FOREX Without the
Placing of a Stop Loss Order.
When you place a STOP order, right along with your ENTRY
order, via your online trade station, you've just
automatically prevented a potential loss from "running" too
far.
Before initiating any trade, if you haven't already figured
out at what point you would be wrong and would want to cut
your loses or, at the very least, reevaluate your position
from the sidelines, then you shouldn't be putting on the
trade in the first place.
Show us a FOREX trader who doesn't use stop loss orders and
we'll show you someone who loses a lot of money.
To make a profit, in the FOREX, a trader (possibly YOU
soon?) 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:
<< EUR/USD: 1.3242/45 >>
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
About the Author
Adrian Pablo, FOREX Trader and Freelance Writer.
http://www.1-forex.com
 Amazingly Simple Forex Trading System, Forex Strategies and Techniques Which Will Show You How To Make Up To US$2000 In A Single Trade
Guide To Profitable Forex Day Trading
|
Forex Trading News
Forex Trading Pal Launches Rebate Program to Strengthen its Introducing Broker Status (PRWeb via Yahoo! News) - Tue, 02 Dec 2008 07:01:00 GMT
(PRWEB) December 2, 2008 -- Forex Trading Pal has recently launched its rebate program. Forex Automated Trading Signals Sell EUR/USD Using Breakout2 in Final Week of Free Trial (Daily FX) - Mon, 01 Dec 2008 02:07:44 GMT
Our Forex Automated Trading Signals have sold the Euro against the U.S. Dollar, at 1.2654, using our flagship Breakout2 system. Forex Automated Trading Signals Buy GBP/JPY Using Breakout2 in Final Week of Free Trial (Daily FX) - Sun, 30 Nov 2008 23:37:44 GMT
Our Forex Automated Trading Signals have purchased the British Pound against the Japanese Yen using our flagship Breakout2 system. The New Risks of a Popular Forex Trading Strategy (TradingMarkets.com via Yahoo! Finance) - Fri, 28 Nov 2008 17:16:00 GMT
The carry trade has been one of the most popular forex trading strategies in the last few years, but with recent changes in the currency market and increased volatility, the carry trade now looks like a losing proposition. KPMG chief comments on impact of harsh trading climate (Accountancy Age) - Tue, 02 Dec 2008 06:40:47 GMT
Lenders continue to reduce 'bilateral' debt facilities, such as overdradts, forex and BACS services, Simon Collins, KPMG head of Corporate, notes, commenting on how the latest developments in the economy are affecting his clients.
|
|
|
|
RELATED ARTICLES
Calculating FOREX Profits and Losses
FOREX currencies are traded in much smaller divisions than cash. Whereas the smallest division in US cash is the penny ($0.01), US currency can be traded on the FOREX in divisions of $0.0001. This smallest division is called the pip (short for Price Interest Point - sometimes just called 'points'). Since currencies are traded in large lots of (say) $100,000 - small movements in value can generate substantial profits and losses. In a lot of US$100,000 one pip is worth $10 so an increase in 40 pips (4/10 of one cent) can generate a profit or loss of $400.
FOREX Brokers
Most FOREX traders use a broker to handle their transactions. What exactly is a broker? Strictly speaking, a broker is an individual or a company that buys and sells orders according the investor's decisions. Brokers earn money by charging a commission or a fee for their services.
FOREX Signals
One of the disadvantages of FOREX trading is the time investment needed to monitor the markets for advantageous entry and exit points. It's possible to sit in front of a computer monitor for hours watching the markets.
FOREX Trading Strategies
To be a successful FOREX trader you need a trading strategy. There is no one set strategy that is good for all traders; rather, each trader needs to develop his or her individual approach to the FOREX. Some traders rely solely on technical analysis while others prefer fundamental analysis, but many successful FOREX traders use a combination of both to get a broad overview of the market and for plotting entry and exit points.
FOREX Training
Knowledge is the key to successful FOREX trading. The knowledgeable trader has greater awareness of how the market moves and more chances of making profitable transactions. Without knowledge you are shooting in the dark. You may succeed on a few deals but the odds are that you are going to lose in the long run.
FOREX versus Stocks
Stocks have been a popular investment for hundreds of years. Companies issue stocks to raise capital for expansion and new projects, and each share of the stock represents a partial ownership in the company.
How to Read FOREX Quotes
Currency prices are determined by a number of factors, the most important of which are economic and political conditions in the issuing country. Political stability, inflation, and interest rates are all factored into the price of any currency. In addition, governments can try to control the price of their currency by either flooding the market (to lower the price) or buying extensively (to raise the price).
Introduction to Fundamental Analysis
FOREX traders almost always rely on analysis to make plan their trading strategies. There are two basic types of FOREX analysis - technical and fundamental. This article will look at fundamental analysis and how it used in FOREX trading.
Risks of FOREX Trading
Despite the claims you may see on some FOREX web sites, FOREX is not risk-free. You are trading with substantial sums of money and there is always a possibility that trades will go against you. There are several trading tools, however, that can minimize your risk, and with caution, and above all education, the FOREX trader can learn how to trade profitably and while minimizing losses.
Trading Currencies on Margin
The key to FOREX popularity is margin. Without margin, the FOREX would be beyond the reach of the average investor. So, what exactly is margin and how does it work?
|
