BASIC CONCEPTS REQUIRED FOR SALE OF Quotes and spread
Quote – this is the value of one currency unit (the base), expressed in units of another currency (the quote). In marking traded currency pair (for example, USD / CHF) base currency is recorded first quoted – the second one.
That is, in our example:
USD – U.S. dollar is the base currency,
and CHF – Swiss Franc – quote.
Quote – this is the value of one currency unit (the base), expressed in units of another currency (the quote). In marking traded currency pair (for example, USD / CHF) base currency is recorded first quoted – the second one.
Quotation is composed of two digits.
The first figure – We (Bid) – The price at which the client can sell the base currency,
Second – ASK (Ask) – price at which the customer can buy the base currency for quoted.
Example:
Quote USD / CHF 1,2800 / 1,2805 means that
You can sell dollars at the price bid 1,2800 Swiss francs for $ 1;
(simple, sell the dollar at a price of 1 Swiss franc 28 centimes).
You can buy dollars at prices ask 1,2805 Swiss francs for $ 1;
(simple, buy one dollar for the price of 1 Swiss franc centimes 28,05).
Spread (difference between bid price and the price ask, is called the spread (spread) is 5 points. The amount of spread depends on the pair of currencies, the amount of the transaction and the market.
base currency in this example – USD, quoted – CHF.
Minimal change in quotes is called a point (Pips).
Miscellaneous tools (a pair of currencies) are traded, with varying accuracy, ie with different number of decimal places in the listing. Most currencies are quoted with an accuracy of 0.0001, some, such as the yen and its crosses – with an accuracy up to 0,01.
Transactions
The conclusion of the transaction consists of several stages:
Request quotes;
obtaining quotes;
command;
confirmation of the transaction.
When asked, you need to specify a couple of interest rate (instrument) and the amount of the transaction. Only after receipt of the quotations should be given command Buy (buy) or Sell (sell). The decision to accept in advance, because the answer should be given within seconds – the prices on the market are constantly changing and may cancel the listing broker and suggest another. Then the broker will confirm the conclusion of the transaction, after which it can not be undone.
On the Forex market made to conclude the transaction, indicating the amount of the base currency, with the usual amount of the transaction is 100 000.
Sometimes, to expedite the transaction at market prices, items 1 and 2 are not available, so the trader makes a transaction as soon as the current quotation.
Open position
Open position – a condition in which a trader can make a profit or loss from changes in exchange rates. If the trader has carried out the operation of purchase of currency, it said that he had a long position. If sold – a short position.
Example of opening a position.
If a deal to buy Buy 100 000 GBP at the exchange rate of 1.8200 dollars for one pound and is theoretically consistent with the sale of 182 000 USD, then came a long position on the pound (or one can say for the GBP / USD) and the short position – on the dollar.
Note: The trading terminal, we see only Buy 100 000 GBPUSD.
Closing position
If we conclude a deal Sell 100 000 GBP, is thus the position would be closed. This will make a profit or loss, depending on the rate of closure.
Stop and Limit Orders
To make a deal on purchase / sale of currency, you can not just by requesting quotes and command Buy or Sell ( “buy” or “sell”), but also by placing orders – orders to buy / sell a certain currency in advance of the course.
The warrants are of two types: Stop order (Stop Order) and the limit order (Limit Order); sometimes referred to as Stop Loss and Take Profit.
Stop order (Stop Loss)
Stop order – this order for the transaction of less favorable rate than there is on the market at the time of placement of order (ie at a lower rate of sales or higher – for the purchase).
Stop order used to limit possible losses ( “Stop Loss”) for an open position in the event of adverse rate movements.
Sample
Suppose now quote USD / CHF is 1.2800 / 1.2805.
You open position 100 000 Buy USD / CHF at the exchange rate of 1.2805 and the post Stop Order Sell 100 000 USD / CHF at the exchange rate of 1.2750.
Now you know that if the rate of USD / CHF drops to 1.2750, then your position is automatically closed by the broker that will prevent further loss and in this case you get a loss of 55 points.
Limit order (Take Profit)
Limit order – an order to commit this transaction at a favorable rate than there is on the market at the time of placement of order (ie, a higher rate of sales or lower – to buy). The limit order is used to record profits ( “Take Profit”).
Sample.
Suppose now quote USD / CHF is 1.2800 / 1.2805.
You open position 100 000 Buy USD / CHF at the exchange rate of 1.2805 and place Take Profit Sell 100 000 USD / CHF at the exchange rate of 1.2905.
Now you know that if the rate of USD / CHF rises to 1.2905 then your position is automatically closed and the broker on your account record profit of 100 points.
CCA (One Cancels Other)
When placing a pair of orders (Stop and Limit), this pair may be designated a sign OCO (One Cancels Other – one cancels the other).
In this case, when executing a warrant, the second is automatically canceled.
Example:
Suppose now quote USD / CHF is 1.2800 / 1.2805.
You open position 100 000 Buy USD / CHF at the exchange rate of 1.2805, and accommodates two CCA warrant:
Stop order: Sell 100 000 USD / CHF at the exchange rate of 1.2750;
Limit order: Sell 100 000 USD / CHF at the exchange rate of 1.2905.
Now you know that if the rate of USD / CHF falls to 1.2750, then your position will be closed (with losses), but now no longer required Take Profit will be canceled automatically. If the rate of USD / CHF 1.2905 to reach, then your position will be closed (with profit), but now no longer required Stop Loss will be canceled automatically.
GTC (Good Till Cancelled), and Day order
Warrants may be a sign of GTC (Good Till Cancelled – valid until further notice).
Warrant such a sign is required for execution until the customer does not cancel it.
In contrast to the GTC is sometimes used Day order – an order that is automatically canceled at the end of the trading day.
Hedging
Hedging – a form of insurance prices, or profits, used for transactions in the Forex market in order to hedge against potential losses due to price changes during the term of the transaction.
Any hedging transaction consists of two phases. At the first open position on the chosen currency pair, the second it rose back of the transaction. At the same time when the classical hedging contracts in the first and second positions must be in the same currency pair in the same quantity and at the same time.
In our case, we use hedging to reduce the risk of loss, and in the event of adverse conditions, our hedge their risks warrant cut losses OPENS warrant.