Calculation of Profits and Losses in Currency Trades

Posted by: | Posted on 4:09:00 AM | Post Categories

In the Forex market you will buy or sell.

It is very easy to open a trade. The process of opening a trade is simple and if you have experience trading in the stock market, you will understand it sooner.

Suppose you bought 10,000 euros at EUR / USD at an exchange rate of 1.1600 for $ 11,600. After two weeks, the EUR / USD exchange rate rose to 1.2500. Then if you sell it for $ 12,500, you will make a profit of $ 600.

 The exchange rate is the ratio of the price of one currency to another. For example, the exchange rate of USD / CHF indicates how much U.S. $ 1 Swiss franc can be bought for 1 dollar, or 1 U.S. S. How many Swiss francs do you need to buy dollars?

How to read forex quotations

In each trade you buy one currency at a time and sell another. So the price of currency pair in the forex market is expressed through quotations.

The foreign exchange rate of GBP / USD is as follows:


The currency before slash (/) is called base currency and the currency after slash (/) is called quote currency.

Here GBP is the base currency and USD is the quote currency.

When buying, the exchange rate indicates how many units of Quote currency you need to pay to buy 1 unit of base currency. For example: 1.5125 USD for buying 1 British pounds. You have to pay dollars.

When selling, the exchange rate indicates how many units of Quote currency can be obtained by selling 1 unit of base currency. For example, if you sell 1 British pound, you get 1.5125 U.S. dollars.


Base currency is the main basis of buy and sell. If you buy EUR / USD, you are buying base currency EUR and selling Quote currency USD at the same time. Simply put, buy EUR, sell USD.

You will buy the currency pair if you believe that the base currency will be stronger than the Quote currency. You will sell it if you think the base currency will be weaker than the Quote currency.

Long / Short:

First you have to decide whether you will buy or sell.

If you want to buy (buy base currency and sell Quote currency), it means you want the price of base currency to go up and you will sell it at a higher price. In the language of traders it is called long (long) or taking long position. Remember, long = buy.

If you want to sell (sell base currency and buy Quote currency), it means you want the price of base currency to go down and you will buy it at a lower price. In the language of traders it is called short or taking short position. Remember, short = sell.

2 prices are shown in the Forex quotation. Bid and Ask. In almost all cases, the bid price is lower than the ask price.

A bid is a price at which the broker wants to buy the base currency instead of the Quote currency. That is, the bid is the best price to sell.

Ask is the price at which the broker wants to sell the base currency instead of the Quote currency. That is, Ask is the best price to buy.

The difference between bid and ask is known as spread.

The bid price above the EUR / USD quotation is 1.3629 and the ask price is 1.3630

That is, the spread here is 1 pips.

If you click cell, you will sell at 1.3456. And if you click buy, you will buy at 1.3458.

 

 


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