1. Purpose of trading
The purpose of trading on
any market is to buy low and sell high. The foreign currency
market FOREX is no exception. The goods traded on this
market are rates of currencies of different countries. As
any other goods the currencies have their prices.
To settle transactions
between businesses located in different countries,
governments, speculative transactions and so forth, banks
around the world execute currency trades on FOREX market.
Depending on various trade, economical and other parameters,
interest rates, central bank policies, time of the day,
preferences and anticipations of the market players, and
many other causes, the rates, that is prices, of currencies
stay in ceaseless motion.
Your task as a trader is to
determine the trend of the rate and buy an appreciating
currency or sell a depreciating one, and then take your
profits through execution of a reverse transaction.
Our dealing center gives you
the opportunity to use AFM (Akmos FOREX Master) software
suite to obtain real time currency quotations from different
banks and largest world exchanges participating in
FOREX market.
At the same time, the rate charts for every currency are
displayed for you, and hottest economical News that
may affect currency rates now or in the future directly or
indirectly are fed to your screen. You may familiarize
yourself with AFM by reading
the user manuals.
And, at last, you will have
a special trading account allowing you to buy and sell
desired currencies. Despite of having US dollars in your
account, you may start your trading from selling
deutchemarks or japanese yens not concerning yourself with
not having bought them in advance.
2. Some codes, numbers and
definitions.
Each currency is assigned a
three-letter code. For example, US dollar is coded - USD
(United States Dollar), euro is coded EUR (EURo),
Swiss frank is coded CHF (Confederation Helvetica
Franc), Japanese yen is coded JPY (JaPanese Yen),
British pound is coded GBP (Great British Pound).
The currency codes are defined by
ISO-4217 standard. Usually they are formed as a
two-letter ISO-3166 country code and the first letter of
currency name. There are a few exceptions most notable being
the euro (EUR).
Currency rates are equal to
ratios of currency units of different countries relative to
each other. The rates are represented by 6-letter words
composed of two three-letter currency codes. The first
position is occupied, as a rule, by the code of a more
expensive currency. The rates are expressed in units of the
second currency per unit of the first one. For example,
rates USDCHF (USD-CHF) show the number of Swiss
franks in one US dollar, but rates GBPUSD (GBP-USD)
show the number of US dollars having to be paid for one
British pound. More detailed information on the codes of
financial instruments may be found in
this table.
3. How to read quotes.
The rates are usually
expressed as five-digit numbers. For example, USDJPY
= 121.44 means that 1 US dollar is valued at 121.44 Japanese
yens (i.e. they are willing to pay you that many
yens for one US dollar while you are buying or selling). At
the same time, GBPUSD = 1.6262 means that 1 British
pound is valued at 1.6262 US dollars. Generally, if the rate
XXXYYY = Z, it means that one unit of XXX is worth
Z units of YYY.
When the rate has changed,
for example USDJPY = 121.44 to USDJPY =
121.45 or GBPUSD = 1.6262 to 1.6263, they say that
the rate has moved 1 point. As it follows from the
information above, yen in this example has DEPRECIATED
by 1 point, but the pound has APPRECIATED, also by
1 point.
While watching the charts,
you should keep in mind that only euro (EURUSD),
British pound (GBPUSD) and Australian dollar (AUDUSD)
charts reflect real movements of the rates of these
currencies (that is, chart going up, means increasing
price), as growth (that is, charts moving up) mean
decreasing rates (prices) for the other currencies.
Sometimes quotes are given
as a pair, for example 121.44/49. It is a
BID/ASK pair: the first number is BID, then the two last
figures of ASK. Knowing that ASK is always higher than BID
and that the spread is under 100 points, the full ASK real
prices can always be defined. In this example ASK = 121.49.
4. BID and ASK prices.
It is known, that every
transaction is executed at a rather well defined and
concrete price, while the table Quote Spread Sheet
lists three prices for each currency, for example:
Each of the participants of
FOREX market
enters each trade as either a SELLER or a BUYER of a
particular currency. In so doing, the seller offers the
currency at a higher price, for example GBPUSD at
1.6325, while the buyer bids for it at a lower price, for
example, GBPUSD at 1.6322. The seller's price is
called ASK and the buyers price is called BID
accordingly. This is why, if you anticipate GBPUSD
to appreciate (your GBPUSD chart to go up), then
you should decide to buy the pound when it is low to sell it
high later. You can BUY only from a seller offering
it at the price equal to ASK. Should you be selling
the pound (this operation is called SELL), the
buyer will bid at a price equal to BID for it (this
holds true for all currencies). The obvious conclusion is
that if you have OPENED a position (the operation is called
OPEN), that is you have executed BUY GBPUSD,
and want to CLOSE it immediately (the operation is called
CLOSE), that is to sell the pounds you have just
bought, then you could do it only at a loss, similar to what
would happen at any currency exchange booth. Consequently,
to make a profit you should let the rate move in the
anticipated direction more than the difference between
BID and ASK. The third number is called
LAST, which is an average of last BID and ASK on Forex.
As described in the section
3 above, currencies with a direct quote only
appreciate when the chart goes up. Currencies with
inverse quote depreciate when the chart goes up.
Considering an upward movement on the chart, BUY operation
would be confusing if it's profitable for some currencies
but not for the others. To clear the confusion, the BUY
operation for currencies with inverse quote, like USDJPY,
was altered. BUY for USDJPY and the like buy not the
currency itself, like JPY but it buys the US dollars
instead, selling the other currency. For example, BUY USDCHF
at 1.4500 buys 100,000 US dollars for 145,000 swiss franks.
Thus, the BUY operation is always profitable when the chart
goes up, SELL is always profitable when the chart goes down.
OPEN BUY (up) is executed at
the ASK, CLOSE - at the bid BID; OPEN SELL (down) – at the
BID, CLOSE - at the ASK.
5. STOP and LIMIT orders.
Let us get aquainted with
some useful trading tools allowing us to protect ourselves
from unforeseen losses to certain degree and take the
expected profits.
These are STOP and
LIMIT. For a previously opened position an
instruction may be entered at any moment (during the working
days) to close it, if the rate reaches a preset level. For
example, you have opened a position expecting the rate to go
up (on the chart). To protect yourself from
significant losses if the rate moves down,
especially in such a situation when you don't have or are
about to lose control of the market, you should enter a
STOP, that is set a price at below its current
value at which your position should be closed with no
further instructions. Similarly, if you have opened a
down position, then you should specify a price
above its current value. In this case you should bear
in mind that if the STOP is set too closely to the
current rate value, then a random rate fluctuation may close
a correctly open position at a loss, but if it is set too
far, then the losses could become unreasonably high.
LIMIT is a rate value that you set at which the
position should be closed with a profit, that is the value
of the LIMIT should always be above the current
level, if you play long, and below it, if you play short. |