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Thequestion that most beginners ask is how to trade in forex. Here is acharacteristic trade situation.
Weassume that it is a standard Lot that you will be trading in. Astandard Lot comprises of 100,000 units of currency.
Nowlet us suppose that the current bid/ask quote for EUR/USD is1.3802/05 and you want to take a long position in it. Going longmeans you are buying because you think the Euro will gain against thedollar.
Whenyou place this order then you are actually buying 100,000 Euros for $138,050 at 1.38050 to the dollar. The margin that you will have todeposit for this trade is $ 1,381, which is 100:1.
Ifthe Euro actually gains against the dollar and is now trading at1.3865/68 and you decide to book your profit, you will have to sellone standard Lot. The profit you take home is 60 pips.
Whenyou sell this pair you have sold 100,000 Euros for $ 138650 at 1.3865to the dollar. Considering that you purchased this Lot for $ 138,050you make a cashprofit of$ 600. That is how in forex markets.
Thereis a possibility of the Euro falling instead of gaining. Suppose theEuro went down to 1.3775/78 and you want to exit from the trade, youwill be booking a loss of $ 300 (being the difference between youpurchase for 138050 and sale for 137750) as the Euro fell by 30pips.
Youhave invested $ 1381 in the trade and you need to protect your equityby employing a healthy risk management rules. This is one of theimportant aspects of trading to ensure that your account equity doesnot fall below margin levels. If it does then your trade will be resulting in a considerable loss.
