Percentage in Point

Posted: 23 Nov 2010 06:00 AM PST

Forex is the acronym of "Foreign Exchange". So, forex trading strategies is all about how you can trade currencies. Trading is done of both i-e buying and selling but when it comes to forex then you buy and sell international currencies. Us dollar ($) is used as base currency and against it other countries currencies are bought and sold in forex trading. It is not necessary that one should use US dollar only but you can also use your local currency as base currency but in such a case it will be known as "Cross Trade". Now cross trade is the exchange of two currencies without involving US dollar.

How To Trade Currency

Here is a scenario for you to understand easily the process of forex trade. Suppose you believe that in the near future Japanese Yen might be appreciated against US dollar. So the current exchange rate for ¥ 120 is a US dollar. Then you go to the bank and exchange US$ 20,000 for ¥ 2,400,000.00

US$ 1.00 = ¥ 120.00
US$ 20,000.00 = (120*20,000)
You will get: ¥ 2,400,000.00

Profit

And later on, Five Yen are appreciated ¥ 115 to a US dollar. You go to the bank and exchange Yen into US dollars. By exchanging you will get US$ 20,869.56. Extra amount of US$ 20,869.56 is your profit on your initial investment of US$ 20,000.

¥ 115.00 = US$ 1.00
¥ 2,400,000.00 = (1/115)*2,400,000 = US$ 20,869.56

As Initial Investment was: = US$ 20,000.00

Profit = US$ 869.56

Loss

After discussing Profit, the next case is loss in forex trading. It isn't necessary that your expectations should come true and Yen is appreciated against US dollar. Now suppose that Japanese currency is weaken by five Yen i-e ¥ 125 to a US dollar. Now you have to choices in this case, one is option is to hold on your Yens and the second option is exchange back your yens into dollars. In case you want to exchange for fear that Yen may get weaker. You'll get US$ 18,200.00. Your loss is US$ 800.00 as your initial investment was US$ 20,000.00 and it reduced to US$ 18,200.00.

¥ 125.00 = US$ 1.00
¥ 2,400,000.00 = (1/125)*2,400,000 = US$ 18,200.00

As Initial Investment was: = US$ 20,000.00

Loss= (-US$ 800.00)

Forex trading can not be called as gambling because in gambling once you placed your money you can not withdraw it from a losing situation. While in forex trading, you can set limit to lose or wait for your profit. The above techniques were to make you aware and to teach you about currency trade

GreatTrader FOREX

Pages