Currency Fluctuations: Trade Forex
In Forex market investors make profit on currency rate fluctuations. The stronger the rate (quotation) changes the bigger your profit or loss is.
It is important to understand that a decreasing rate may be just as beneficial as the rising one in the Forex market.
- When the rate is increasing, you are buying the base currency for the quoted one, so that to sell it later at a higher price (trading volume is always expressed in the quoted currency).
- When the rate is decreasing, you are selling the base currency for the quoted one, so that to buy it later at a lower price (trading volume is always expressed in the quoted currency).
Such actions constitute a complete trading operation in which you first open a buy or sell position to close it at a new price later by performing a reverse deal.
Let us say the currency pair EURUSD had been falling and then started an upward correction at 1.1225. You suppose the correction will be short – lived and decide to open a sell position when the downward movement resumes. The pair starts falling after reaching 1.1286. You set a Sell Stop order at 1.1284 to sell 10 000 euros. When the price reaches that level, a short position is opened. You decide to set Take Profit order at 1.1145. When the Ask price reaches that level, Take Profit order triggers a reverse operation. You buy €10 000 at 1.1145 and take 139 points (1.1284-1.1145=0.0139). With the given volume of €10 000 (0.1 lots), the cost of 1 point equals $1. Thus, you make a profit of $139.