As we have repeatedly said no, a private Internet trader enters the market Forex online broker or dealing companies. Internet trader earns money through currency speculation, closing positions in a more favorable exchange rate conditions than opening. For Internet trader working at Forex - risky business. Depending of the strategy of trading (trading strategies will be discussed in the University of Foreign Exchange), the efficiency of the foreign exchange market may be different. An important success factor is the nature of the trader, his ability to control his emotions and make informed decisions.
Internet service brokers in the Forex market, by contrast, can be called a business. In this business, there is practically no risk. The principle of margin trading, as stated in the relevant chapter, does not allow the client dealing company to lose more money than is available in their account and "get into the pocket" Internet broker.
We know that the transactions are made in the Forex interbank level. In dealing company has multi-currency accounts at the bank, where it is served. This bank provides quotes dealing company, and that, in turn, provides quotes to its customers. Typically, these quotes are different - Internet traders get quotes from several enlarged spread. This allows dealing company to make a difference in a spread, because the level of interbank transactions are made at more favorable quotes. Here is an example. Suppose the bank exposes dealing center quotation USD / JPY 104.75/104.77 to the size of the spread of 2 points. Dealing center increases the size of spread to 4 points and provides its customers with a quotation USD / JPY 104.74/104.78. Suppose Internet trader opens a short position (sell U.S. dollars) in one lot, the amount of which is equal to 100 thousand dollars. Internet trader sells dollars at the price of 104.74 yen to the dollar, but in fact at the interbank level transaction is executed at the price of 104.75 yen per dollar. A difference of 100,000 * (107.75 - 104.74) = 1000 Japanese Yen, which in terms of dollars at the bank rate is approximately 1,000 / 104.77 = 9.54 dollar. This amount - a steady income dealing company that is not associated with any risk. It should be noted that this is only the income from the client's open positions. As much as dealing company earns a closing position. Of the order of $ 19 of income from the transaction. When dealing with clients of thousands, and the day they make dozens of trades, the daily income of dealing company may be hundreds of thousands of dollars! As you can see, this is a very lucrative business.
But the spread can not be the sole source of income online brokers. Some dealing companies may charge a fee for the transaction, or even separate fees for opening and closing. In principle, such a commission similar to the income from the spread. For example, in our example, dealing company can provide customers with interbank quotation USD / JPY 104.75/104.77 directly (without increasing the spread), but take 19 dollars from the client for each transaction. It turns out the same profits. It should be noted that some online brokers may take commission and increase the interbank spread. In fact, check whether dealing company increases the interbank spread or not is difficult, since quotes are constantly changing, and interbank spreads unknown Internet trader.
The above described method of dealing income occurs when Internet trader in his work on Forex uses standard lot sizes. If using a mini or micro lots, the situation is somewhat different. Dealing company can not make a deal on such a small amount through the bank at the interbank level. The size of one mini lot is equivalent to 10 thousand dollars, and a micro lot - 1000 dollars. Minimum transaction size is at the interbank level - 100,000 dollars. How, then commit the transaction in this case? It operates a simple stats - up to 95% beginner Internet traders lose their money at work on Forex. Typically, this is because most people are starting to work on Forex, looking for easy money. They do not study thoroughly the theory of the foreign exchange market, the tools of his analysis, the impact of the release of economic indicators exchange rates. For people working at Forex becomes a game of roulette. It is because the mini and micro lots generally work only novice traders and amateurs, the dealing company trades on such lots at the interbank level does not enter. If the Internet trader closes the position on the mini or micro lot with losses, these losses are dealing company receives as income. If the Internet trader closes the position on the mini or micro lot at a profit, then that profit pays dealing company. Since 95% of new traders will sooner or later lose their money, the remaining 5% to ravage dealing company, you need to make a profit greater than the loss of the most 95% of the fortune hunters. If we assume that the initial size of each trader's account is the same, then the profit is expected to increase by 19 times, and the probability of this is negligible. Moreover, if the Internet trader is a very successful operation in the mini lots, then soon it goes to the standard items, where dealing company did not pay him an income of "the pocket", and conducts operations through a bank in the interbank level.
The above-described alternative way to earn money is not advertised dealing companies. Most of them said that all transactions are made at the interbank level, regardless of the size of the lots. But common sense and logical reasoning leads to the opposite. Perhaps the truth is somewhere in between. Everyone decides for himself what to believe and what to not. But understand that most new traders lose money is very important. You can make money in Forex, and it's not a myth. But it is not enough to click on the "make a million." Work on Forex - a risky business, requiring Internet trader certain knowledge, skills and abilities.
An additional source of income for dealing company can become a bank interest, as described in the previous chapter. But the income from it, tend to be small, and to get them, open position should not be closed for a long time. Internet broker is much more beneficial if the positions are opened and closed by internet traders as often as possible. Indeed, as described above, each transaction is bringing Internet broker revenue in the form of commissions or by the spread. Income from bank interest, compared with income from commissions and spreads are negligible. It should be noted that dealing companies can not only earn interest in the bank, but to pay it, and this was discussed in detail in the previous chapter.
As we can see, dealing companies are in a better than Internet traders position. They have a stable income, and their activity can be considered a successful business. Dealing companies receive revenue from the spread, commissions, bank interest, failed trades of their smaller customers, working with mini and micro lots. Internet Income traders are limited only successful deals on the change in foreign exchange rates (currency speculation) and, in some cases, bank interest. But despite this, the work on Forex is very attractive. If we consider this type of activity is a "job" rather than a "game", you can get stable high returns. Profitability in this case may exceed the yield on investments in stocks, bonds or mutual funds. If you give in to temptation and begin to work at Forex without having adequate knowledge and skills, it is likely you will lose your money. Now you have a good tip, and what to do in the end - you decide!
The calculation of the
So far, we have thoroughly studied the basic terms and concepts used in Forex, as well as the principle of margin trading. It is time to learn how to calculate the gain or loss on the transaction.
We know that the Internet is a trader on the international currency market through a dealing company that offers him a U.S. dollar account. To work on the Forex trader must put an initial sum of money on this. All gains and losses on transactions made, regardless of the currency transactions are translated into U.S. dollars. In this chapter we discussed in detail the principle of profit and loss account.
In general, the formula for calculating the profit or loss on the transaction can be written as follows:
Financial result = (sale price - purchase price) * lots * of the lot size - commissions * number of lots ± bank interest
As we can see, the financial result is made up of three parts: the trading result, paid fees and bank interest.
We already know that there are two types of Forex quotes (not counting the cross rates) - forward and backward. In the first case, the base currency is a foreign currency against the dollar and is expressed (traded) in dollars. In the second case, the dollar itself is the base currency and is expressed in units of foreign currency. Trading result in the above formula is calculated in the quoted currency. Same bank commission and interest, usually expressed in dollars, so the formula is valid only for direct quotations. It should be noted that in the formulation of the sale price and the purchase price - it does not make up quotes, and the real price for which we sold and bought currencies, regardless of whether the operation was used (buy or sell). When the outcome is positive, then we get the profit. If negative, then we have a loss.
For indirect quote is the difference between buying and selling prices denominated in foreign currency, while the overall financial result is expressed in dollars. Therefore, for the calculation of the financial result of the reverse quotes the following formula:
Financial result = (1/tsena purchases - 1/tsena sale) * lots * of the lot size - commissions * number of lots ± bank interest
The lot size is dependent on the specific quotes (on currency pairs) and the preferences of a particular Internet broker. The above formulas are used if the lot size is expressed in foreign currency (not in U.S. dollars). For example, the lot size for direct quotation GBP / USD may be 70,000 pounds sterling. Or the size of the lot on the back quotation USD / JPY may be 12.5 million Japanese Yen. If your online broker indicates the size of the lot in dollars, in order to use the above formula, you will need to convert dollars into the appropriate currency. Lot Size in foreign currency, in this case, will not be fixed but will depend on the current exchange rate prevailing on the date of opening positions. In U.S. dollars the size of a standard lot is almost always equal to 100,000.
The calculation of the financial result of cross rates is somewhat different. As we discussed in the relevant chapter, cross training - is currency exchange rates in relation to each other, excluding the U.S. dollar. Any cross rate can be represented by two dollar quotes. For example, the cross rate EUR / JPY can be calculated through the quotation EUR / USD and the quotation USD / JPY. Profit and loss in this case is as follows. First, the financial results calculated on the quote EUR / USD, and then calculates the profit or loss on the quote USD / JPY. These financial results are added together to get the total financial result.
As we know, the Forex currency exchange rates vary in points. In different quotations point size varies. When opening a position important to know what the trading result brings us to change course by one point in dollar terms. It will assess their current profit or loss and in time to close the position. Using the above formula, this value is easy to calculate and depends on the type of quotes (forward or backward), the size of one lot, the currency in which the item has been expressed and the size of one item.
Consider a direct quote GBP / USD with a size of one lot of 70,000 pounds sterling, and the point size 0.0001. Since direct quotation, we use the first formula to calculate the trading result. The minimum difference between the purchase price and the selling price is always one point, and in this case is 0.0001. Hence, the trading result of significant changes in GBP / USD on one lot at one point is equal to 0.0001 * 70,000 = U.S. $ 7.
Consider the inverse quote USD / JPY to the size of one lot 12,500,000 Japanese Yen and the point size of 0.01. Since the quotation is reversed, we use the second formula for the calculation of the trading result. Know the value of one point in the case of indirect quote is not enough as the trading result also depends on the values of the prices themselves buying and selling. Assume that the current value of the course is 104.75 Japanese yen per dollar. Then the trading result from the change of USD / JPY for one lot at one point is (1/104.75 - 1/104.76) * 12 500 000 = 11.39 USD. It is worth noting that the different buying and selling prices, we get different trading result. If the lot size is expressed in dollars, it would have to be pre-translated into yen at the appropriate rate at the time of opening the position. And if I go long (buy dollars for yen), the calculations are based on a rate of sale, and if it is short (selling dollars for yen), then - the rate of purchase.
As we can see, change of course by one point at different quotes gives a different performance results. In the quote GBP / USD is smaller than in the quote USD / JPY. The smaller the trading result from the change of one item, the smaller the loss you incur in the event of an unfavorable exchange rate. But on the other hand, the lower will be your profit if the rate of change in the desired direction. Beginners Internet traders are encouraged to work with a less "aggressive" quotations, such as GBP / USD and USD / CHF.
At first glance discussed in this chapter methods of calculation may seem too complicated. But you do not make sense to worry about it, as all the calculations related to gains and losses, trading platform run automatically. Various dealing companies use different trading platforms, but the principle calculations does not change. You also important to understand what constitutes your profits and losses, not to close the position at a loss by mistake!
Internet service brokers in the Forex market, by contrast, can be called a business. In this business, there is practically no risk. The principle of margin trading, as stated in the relevant chapter, does not allow the client dealing company to lose more money than is available in their account and "get into the pocket" Internet broker.
We know that the transactions are made in the Forex interbank level. In dealing company has multi-currency accounts at the bank, where it is served. This bank provides quotes dealing company, and that, in turn, provides quotes to its customers. Typically, these quotes are different - Internet traders get quotes from several enlarged spread. This allows dealing company to make a difference in a spread, because the level of interbank transactions are made at more favorable quotes. Here is an example. Suppose the bank exposes dealing center quotation USD / JPY 104.75/104.77 to the size of the spread of 2 points. Dealing center increases the size of spread to 4 points and provides its customers with a quotation USD / JPY 104.74/104.78. Suppose Internet trader opens a short position (sell U.S. dollars) in one lot, the amount of which is equal to 100 thousand dollars. Internet trader sells dollars at the price of 104.74 yen to the dollar, but in fact at the interbank level transaction is executed at the price of 104.75 yen per dollar. A difference of 100,000 * (107.75 - 104.74) = 1000 Japanese Yen, which in terms of dollars at the bank rate is approximately 1,000 / 104.77 = 9.54 dollar. This amount - a steady income dealing company that is not associated with any risk. It should be noted that this is only the income from the client's open positions. As much as dealing company earns a closing position. Of the order of $ 19 of income from the transaction. When dealing with clients of thousands, and the day they make dozens of trades, the daily income of dealing company may be hundreds of thousands of dollars! As you can see, this is a very lucrative business.
But the spread can not be the sole source of income online brokers. Some dealing companies may charge a fee for the transaction, or even separate fees for opening and closing. In principle, such a commission similar to the income from the spread. For example, in our example, dealing company can provide customers with interbank quotation USD / JPY 104.75/104.77 directly (without increasing the spread), but take 19 dollars from the client for each transaction. It turns out the same profits. It should be noted that some online brokers may take commission and increase the interbank spread. In fact, check whether dealing company increases the interbank spread or not is difficult, since quotes are constantly changing, and interbank spreads unknown Internet trader.
The above described method of dealing income occurs when Internet trader in his work on Forex uses standard lot sizes. If using a mini or micro lots, the situation is somewhat different. Dealing company can not make a deal on such a small amount through the bank at the interbank level. The size of one mini lot is equivalent to 10 thousand dollars, and a micro lot - 1000 dollars. Minimum transaction size is at the interbank level - 100,000 dollars. How, then commit the transaction in this case? It operates a simple stats - up to 95% beginner Internet traders lose their money at work on Forex. Typically, this is because most people are starting to work on Forex, looking for easy money. They do not study thoroughly the theory of the foreign exchange market, the tools of his analysis, the impact of the release of economic indicators exchange rates. For people working at Forex becomes a game of roulette. It is because the mini and micro lots generally work only novice traders and amateurs, the dealing company trades on such lots at the interbank level does not enter. If the Internet trader closes the position on the mini or micro lot with losses, these losses are dealing company receives as income. If the Internet trader closes the position on the mini or micro lot at a profit, then that profit pays dealing company. Since 95% of new traders will sooner or later lose their money, the remaining 5% to ravage dealing company, you need to make a profit greater than the loss of the most 95% of the fortune hunters. If we assume that the initial size of each trader's account is the same, then the profit is expected to increase by 19 times, and the probability of this is negligible. Moreover, if the Internet trader is a very successful operation in the mini lots, then soon it goes to the standard items, where dealing company did not pay him an income of "the pocket", and conducts operations through a bank in the interbank level.
The above-described alternative way to earn money is not advertised dealing companies. Most of them said that all transactions are made at the interbank level, regardless of the size of the lots. But common sense and logical reasoning leads to the opposite. Perhaps the truth is somewhere in between. Everyone decides for himself what to believe and what to not. But understand that most new traders lose money is very important. You can make money in Forex, and it's not a myth. But it is not enough to click on the "make a million." Work on Forex - a risky business, requiring Internet trader certain knowledge, skills and abilities.
An additional source of income for dealing company can become a bank interest, as described in the previous chapter. But the income from it, tend to be small, and to get them, open position should not be closed for a long time. Internet broker is much more beneficial if the positions are opened and closed by internet traders as often as possible. Indeed, as described above, each transaction is bringing Internet broker revenue in the form of commissions or by the spread. Income from bank interest, compared with income from commissions and spreads are negligible. It should be noted that dealing companies can not only earn interest in the bank, but to pay it, and this was discussed in detail in the previous chapter.
As we can see, dealing companies are in a better than Internet traders position. They have a stable income, and their activity can be considered a successful business. Dealing companies receive revenue from the spread, commissions, bank interest, failed trades of their smaller customers, working with mini and micro lots. Internet Income traders are limited only successful deals on the change in foreign exchange rates (currency speculation) and, in some cases, bank interest. But despite this, the work on Forex is very attractive. If we consider this type of activity is a "job" rather than a "game", you can get stable high returns. Profitability in this case may exceed the yield on investments in stocks, bonds or mutual funds. If you give in to temptation and begin to work at Forex without having adequate knowledge and skills, it is likely you will lose your money. Now you have a good tip, and what to do in the end - you decide!
The calculation of the
So far, we have thoroughly studied the basic terms and concepts used in Forex, as well as the principle of margin trading. It is time to learn how to calculate the gain or loss on the transaction.
We know that the Internet is a trader on the international currency market through a dealing company that offers him a U.S. dollar account. To work on the Forex trader must put an initial sum of money on this. All gains and losses on transactions made, regardless of the currency transactions are translated into U.S. dollars. In this chapter we discussed in detail the principle of profit and loss account.
In general, the formula for calculating the profit or loss on the transaction can be written as follows:
Financial result = (sale price - purchase price) * lots * of the lot size - commissions * number of lots ± bank interest
As we can see, the financial result is made up of three parts: the trading result, paid fees and bank interest.
We already know that there are two types of Forex quotes (not counting the cross rates) - forward and backward. In the first case, the base currency is a foreign currency against the dollar and is expressed (traded) in dollars. In the second case, the dollar itself is the base currency and is expressed in units of foreign currency. Trading result in the above formula is calculated in the quoted currency. Same bank commission and interest, usually expressed in dollars, so the formula is valid only for direct quotations. It should be noted that in the formulation of the sale price and the purchase price - it does not make up quotes, and the real price for which we sold and bought currencies, regardless of whether the operation was used (buy or sell). When the outcome is positive, then we get the profit. If negative, then we have a loss.
For indirect quote is the difference between buying and selling prices denominated in foreign currency, while the overall financial result is expressed in dollars. Therefore, for the calculation of the financial result of the reverse quotes the following formula:
Financial result = (1/tsena purchases - 1/tsena sale) * lots * of the lot size - commissions * number of lots ± bank interest
The lot size is dependent on the specific quotes (on currency pairs) and the preferences of a particular Internet broker. The above formulas are used if the lot size is expressed in foreign currency (not in U.S. dollars). For example, the lot size for direct quotation GBP / USD may be 70,000 pounds sterling. Or the size of the lot on the back quotation USD / JPY may be 12.5 million Japanese Yen. If your online broker indicates the size of the lot in dollars, in order to use the above formula, you will need to convert dollars into the appropriate currency. Lot Size in foreign currency, in this case, will not be fixed but will depend on the current exchange rate prevailing on the date of opening positions. In U.S. dollars the size of a standard lot is almost always equal to 100,000.
The calculation of the financial result of cross rates is somewhat different. As we discussed in the relevant chapter, cross training - is currency exchange rates in relation to each other, excluding the U.S. dollar. Any cross rate can be represented by two dollar quotes. For example, the cross rate EUR / JPY can be calculated through the quotation EUR / USD and the quotation USD / JPY. Profit and loss in this case is as follows. First, the financial results calculated on the quote EUR / USD, and then calculates the profit or loss on the quote USD / JPY. These financial results are added together to get the total financial result.
As we know, the Forex currency exchange rates vary in points. In different quotations point size varies. When opening a position important to know what the trading result brings us to change course by one point in dollar terms. It will assess their current profit or loss and in time to close the position. Using the above formula, this value is easy to calculate and depends on the type of quotes (forward or backward), the size of one lot, the currency in which the item has been expressed and the size of one item.
Consider a direct quote GBP / USD with a size of one lot of 70,000 pounds sterling, and the point size 0.0001. Since direct quotation, we use the first formula to calculate the trading result. The minimum difference between the purchase price and the selling price is always one point, and in this case is 0.0001. Hence, the trading result of significant changes in GBP / USD on one lot at one point is equal to 0.0001 * 70,000 = U.S. $ 7.
Consider the inverse quote USD / JPY to the size of one lot 12,500,000 Japanese Yen and the point size of 0.01. Since the quotation is reversed, we use the second formula for the calculation of the trading result. Know the value of one point in the case of indirect quote is not enough as the trading result also depends on the values of the prices themselves buying and selling. Assume that the current value of the course is 104.75 Japanese yen per dollar. Then the trading result from the change of USD / JPY for one lot at one point is (1/104.75 - 1/104.76) * 12 500 000 = 11.39 USD. It is worth noting that the different buying and selling prices, we get different trading result. If the lot size is expressed in dollars, it would have to be pre-translated into yen at the appropriate rate at the time of opening the position. And if I go long (buy dollars for yen), the calculations are based on a rate of sale, and if it is short (selling dollars for yen), then - the rate of purchase.
As we can see, change of course by one point at different quotes gives a different performance results. In the quote GBP / USD is smaller than in the quote USD / JPY. The smaller the trading result from the change of one item, the smaller the loss you incur in the event of an unfavorable exchange rate. But on the other hand, the lower will be your profit if the rate of change in the desired direction. Beginners Internet traders are encouraged to work with a less "aggressive" quotations, such as GBP / USD and USD / CHF.
At first glance discussed in this chapter methods of calculation may seem too complicated. But you do not make sense to worry about it, as all the calculations related to gains and losses, trading platform run automatically. Various dealing companies use different trading platforms, but the principle calculations does not change. You also important to understand what constitutes your profits and losses, not to close the position at a loss by mistake!
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