What is Forex trading?

 If I put this in simple words, Forex or also called Foreign exchange is a market place from where you can both buy and sell several currencies across the world.

Without a doubt, Forex trading is Huge these days. And if you want to choose Forex trading as a profession then you have to acquire a vast amount of knowledge on several topics as the currency pairs, time charts, market indicators, etc.

Example! GBP / USD has a sale price of 1.35540 and the purchase price of 1.35560. You think the pound will lose value against the US dollar, as the Bank of England will cut interest rates, so you decide to sell five standard lots at 1.35540.

Each contract is equal to 100,000 of the base currency of the pair. In this case, a single standard contract to sell GBP / USD trade is equivalent to £ 100,000 for a $ 135 540 so that the amount of your position is worth $ 677 700 (£ 500 000).

CFDs are leveraged products, so you do not have to put upfront the full value of your position. Much of this size on the GBP / USD has a 0.50% margin requirement so that your margin will be 0.50% of the total exposure of your trade, which is $ 3,388.50 (£ 2,500).

If your prediction is correct

The pound fell as you predicted. You decide to close your position at the time of the purchase price reaches 1.35440.

To calculate your benefits, you multiply the difference between the closing price and the opening price of your position size. 1.35540 to 1.35440 = 10 points, you multiply by five CFDs for a profit of $ 500.00 (minus the cost overnight).

Another way to think about it is that you are now worth $ 677,700.00 £ 500,369.17 ($ 677,700 / 1.35440), so your profit is £ 369.17 (£ 500,369.17 – £ 500,000.00).

Calculating your profit from FX CFD

1.35540 to 1.35440 = 10 points, you multiply by five CFDs for a profit of $ 500.00.

Just remember that you only need to pay the cost of funds overnight if your position is held overnight. commission fee only applies if you trade FX is directing.

If your prediction is wrong

GBP/USD rises instead. You decide to cut your losses and reverse your trade when the buy price is 1.35700.

Your position has moved 16 points against you, meaning you make a loss of $800.00 (in addition to any overnight charges).

Calculating loss from your FX CFD

1.35540 – 1.35700 = -16 points, which you multiply by $50.00 to give you a loss of $800.00.

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