FOREX QUOTATIONS

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FOREX QUOTES

Characteristics:

Currency tradings consist of buying and selling a pair of currencies."CROSS" means the currency combination used in a trade.In a currency pair the first currency is the base one and the second currency is the quote one.It means that we need X units of the quote currency to buy one unit of the base currency.Every currency has a standard symbol according to I.S.O..The symbol for the currency of each country is composed of 3 letters:

-the former 2 letters symbolise the country's currency

-the latter letter represents the currency`s name.

eg. USD=U.S.A. DOLLAR

USD is considered to be the base currency for quotations with 3 exeptions: Pound Sterling(GBP), Australian dollar (AUD) and Euro (EUR).If a quotation increases the base currency`s value grows.A weak quotation means that the base currency decreased.For example USD/EUR 200.1 means 1USD=200.1EUR.If the quote moves from USD/EUR 200.1 to USD/EUR 200.3 the USD is growing stronger than the EUR.

When you are trading on FOREX you will often notice a quotation with two sides,namely BID-demand and ASK-supply.BID means the price you can sell the base currency(while you buy counter-currency)and ASK means the price you can buy the base currency(while you sell the counter-currency).

Two most important Forex trading terms are:

PIP

A "Percentage In Point" (P.I.P.) is the smallest commonly quoted change of an exchange rate of a currency pair. All major currencies, without the Japanese yen, are priced to four decimal places.If the currency pair EUR/USD is traded at an exchange rate of 1.5000 (1 EUR = 1.5 USD) and the rate changes to 1.5050, the price ratio increased by 50 pips.Thus, if a trader buys 5 standard lots of EUR/USD, paying USD $150,000 and closes the position after the 10 pips appreciation, the trader will receive USD $150,500 and achieved a profit of 500 US dollars.

Bid/Ask(offer) SPREAD

It is the difference between the price quoted by a market maker for an immediate sale (BID) and an immediate purchase (ASK).If the current BID price for the EUR/USD currency pair is 1.2907 and the current ASK price is 1.2913, this means that currently you can SELL the EUR/USD at 1.2907 and BUY at 1.2913.the BID price is always lower than the ASK price. The difference between those prices is the SPREAD.

Tradings have no commission,the companies earn from spread. Usually the spread represents 5 up to 15 pips.

Forex is traded on margin, typically on a 100:1 leverage.This means that you can buy and sell assets which represent more value than you can have in your account. As a rule, the leverage,namely: margin based trading, is 1.0%,so you can invest for example 100 times more than the money you can have in your account. the high leverage allows a more power of buying with a minimum expense.

This is a more efficient use of your capital because you only have to allocate a very small proportion of the value of your position to secure a trade, while maintaining full exposure to the market. In effect you are able to amplify the returns on your investment. However it is important to note that although if the market move in your favour profit will be amplified, if the position turns against you, your losses will also be amplified.

To illustrate the power of leverage provided through the use of margin, consider a margin ratio of 100:1 coupled with a trading account containing $1,000. This means that you could trade amounts up to $100,000! Trading in larger volumes allows you to take better advantage of even small price movements.

If the sum from the trading account decreases under the necessary leverage to maintain the Forex positions,all the positions will be sold automatically at the current price of the market. So the traders are protected,could not lose more than the sum which exist in their trading account.

The traders must know that the trading based on leverage represents a very risky activity.The trading based on leverage implies a high level of risk and can amplify not only the losses but also the profits .

Notwithstanding there are a lot of ways to limit the risk through a wide range of orders (Take Profits,Stop Loss,O.C.O.-One Cancels the Other,IF-Done).All these orders can be put online and are available to everyone.

 
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