Tuesday, April 20, 2010
Currencies are quoted in pairs. Example EUR/USD GBP/USD, USD/INR etc If EURO/USD is quoted as 1.1420 it effectuation 1 Euro = 1.1420 USD or you intend 1.1420 USD for 1 Euro.
You may see the quote like this EURO/USD 1.1420(bid) – 1.1423 (Ask) It effectuation you need to pay 1.1423 to buy 1 EURO but if you sell 1 EURO, you intend only 1.1420 USD. The disagreement between selling price and buying price is called ‘spread’ and this is the income of the forex broker.
Let’s take an warning of a trade to understand how one makes profit in a forex business. Suppose the EUR/USD price was 1.1420/23 yesterday. You had oversubscribed 1 Euro and you got 1.1420 USD (remember, you don’t need to have Euro to do this transaction) Let’s assume that today the price has changed to 1.1416/19 You sell 1.1419 USD and intend 1 Euro. You prefabricated a profit of 0.0001 US Dollar in this transaction, right? If you had prefabricated the above transaction with 100,000 Euros you would have prefabricated a profit of 0.0001x100000 = 10 US Dollars.
Let’s take another warning of Japanese Yen trade Assume that the USD/JPY price was 88.90/92 yesterday. You had oversubscribed 1 USD and you got 88.90 Yens (remember, you don’t need to have USD to do this transaction) Suppose that today the price has changed to 188.77/79 You sell 88.79 Yens and intend 1 USD.
You prefabricated a profit of 0.01 Yen in this transaction, haven’t you? If you had prefabricated the above transaction with 100,000 US Dollars you would have prefabricated a profit of 0.01x100000 = 1000 Yens (little more than 10 US dollars) Currencies are normally bought or oversubscribed in lots. 1 standard aggregation is normally 100,000 and 1 mini aggregation is 10,000 and 1 micro aggregation is 1,000 In currency pairs like EUR/USD or GBP/USD apiece pip is worth $10 per standard lot (example trade 1) Pip is the last decimal of the price. In the trade examples given above, we can say that a profit of 1 pip is made.
If we had prefabricated the Trade 1 with a mini aggregation profit would have been 0.0001x10,000 = $1 In mini aggregation 1 pip is equal to $1 in pairs EUR/USD, GBP/USD, AUD/USD Some Brokers have different aggregation size for Euro. Instead of 10,000 they may offer 12,500 as the aggregation size. In that case profit will be 0.0001x125000 = $1.25
You may see the quote like this EURO/USD 1.1420(bid) – 1.1423 (Ask) It effectuation you need to pay 1.1423 to buy 1 EURO but if you sell 1 EURO, you intend only 1.1420 USD. The disagreement between selling price and buying price is called ‘spread’ and this is the income of the forex broker.
Let’s take an warning of a trade to understand how one makes profit in a forex business. Suppose the EUR/USD price was 1.1420/23 yesterday. You had oversubscribed 1 Euro and you got 1.1420 USD (remember, you don’t need to have Euro to do this transaction) Let’s assume that today the price has changed to 1.1416/19 You sell 1.1419 USD and intend 1 Euro. You prefabricated a profit of 0.0001 US Dollar in this transaction, right? If you had prefabricated the above transaction with 100,000 Euros you would have prefabricated a profit of 0.0001x100000 = 10 US Dollars.
Let’s take another warning of Japanese Yen trade Assume that the USD/JPY price was 88.90/92 yesterday. You had oversubscribed 1 USD and you got 88.90 Yens (remember, you don’t need to have USD to do this transaction) Suppose that today the price has changed to 188.77/79 You sell 88.79 Yens and intend 1 USD.
You prefabricated a profit of 0.01 Yen in this transaction, haven’t you? If you had prefabricated the above transaction with 100,000 US Dollars you would have prefabricated a profit of 0.01x100000 = 1000 Yens (little more than 10 US dollars) Currencies are normally bought or oversubscribed in lots. 1 standard aggregation is normally 100,000 and 1 mini aggregation is 10,000 and 1 micro aggregation is 1,000 In currency pairs like EUR/USD or GBP/USD apiece pip is worth $10 per standard lot (example trade 1) Pip is the last decimal of the price. In the trade examples given above, we can say that a profit of 1 pip is made.
If we had prefabricated the Trade 1 with a mini aggregation profit would have been 0.0001x10,000 = $1 In mini aggregation 1 pip is equal to $1 in pairs EUR/USD, GBP/USD, AUD/USD Some Brokers have different aggregation size for Euro. Instead of 10,000 they may offer 12,500 as the aggregation size. In that case profit will be 0.0001x125000 = $1.25
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