July 29, 2010
When To Buy Shares Or Trade The Forex For Maximum Profits
Ideally, you buy stock or currencies at its lowest price and sell at its highest.
Practically speaking, you do the best you can between these unpredictable extremes.
For, as you will see, the low does not become apparent until your stock begins to rise above it, the high is not established until your stock begins to drop away.
Although all of us could wish it otherwise, no bells, no flashing lights, no 21-gun salutes ever mark the bottom or the top.
Timing your stock transactions, therefore, is perhaps the most delicate element of investment, the decision requiring the keenest judgment and the surest touch. Experience helps, although success is not necessarily proportional to it. Veterans of the market, men who have been buying and selling for 30 or 40 years, sometimes seem to have a sixth sense about turning points, up or down, for individual stocks, or industrial groups, or the market as a whole.
On what seems to be no discernible evidence, they will mutter, “Well, I think the market’s going to fall out of bed,” and, sure enough, within a week there is a 9 or 10 point reaction. Yet newcomers may also acquire this skill with surprising speed.
Since judgment is a subjective quality, there are no firm rules for applying it. But there are generalities that can begin to define objectives and delimit areas of choice. And there are a number of techniques which attempt, more or less successfully, to better the average results obtained from trying to calculate timing arbitrarily.
Most professionals will tell you, right off, not to try for the extremes. The surest way to miss tops or bottoms is to wait for that last extra point of gain, that one more point of drop. Usually, an investor is considered to have done very well if he buys or sells within 5 points of the limit on a moderate-to-wide swing, within a point or two over a narrow range.
Another way of looking at the ideal objective is to reverse it: try to avoid selling at the low or buying at the top. This may seem to be superfluous advice, but both have happened many times when emotion entered heavily into judgment. Buying near or at the top is a temptation when a stock has been rising swiftly and steadily and the investor is eager to get aboard. The top, after all, is only relative.
New tops may be within reach which will make the current one seem a reasonable buying level. Selling near or at a low is tempting when a stock has slid downward and the holder has become disenchanted with it. The impulse is to sell out, take the loss, avoid further trouble, and be well rid of the dog.
The correctness of these decisions cannot be judged in the abstract. They depend, first, on your objectives (See Chapter 3) and on how closely or satisfactorily you have realized them. And they depend on your analysis of the several dimensions of highness and lowness involved.
Buying for income is relatively easy. The indicated dividend divided by the current price will give the yield in percentage terms. If the yield suits you, and investigation suggests that it is likely to be maintained, the price is right, whether it is in the high, middle, or low range for the year.
The problem of the buyer-for-income in recent years, of course, has been the fact that a rising market has reduced yields to some very uninspiring levels. The average yield of 10 big oils in the first quarter of 1959 was 3 per cent. For five chemicals it was 2.24 per cent. For seven steels it was 3.85 per cent. Only the better railroads were around 5 per cent, as a group.
Strictly on an income basis, the investor would do better at the savings bank than in oils and chemicals, and might be considered to have missed his market in these categories. The choice then is whether to argue himself into accepting 3 or 3.5 per cent (or 2.2 if he wants G.E., 1.5 if he wants Dow) in a sought-after category, whether to switch categories, or whether to ignore the market until conditions are more to his liking. There may also be a temptation to jump into a stock that for some reason is still yielding 5 or 6 per cent, although it would be foolish to do so without determining why it has maintained a high price/dividend relationship when everything else is low.
If the objective is capital gain, timing becomes more crucial. Somehow you must determine how many more points above the current price your stock is likely to go, and whether this will be a satisfactory profit, considering that possibly 25 per cent of it will go for taxes.
All rises must be predicated on earnings, or the expectation of earnings. Take, for instance, a stock selling at 50 and paying $2. This is a 4 per cent yield, which, we’ll say, is about average for this market this year.
Now, news gets out that it is possible that the company will earn $6 per share by year’s end. Since a 50-per cent payout is the general practice, a dividend rise to $3 is indicated.
Naturally, there will be a small rush toward the stock and a rise in the market price, probably to 75, or the new equivalent of 4 per cent.
This is the simplest sort of cause-and-effect relationship, so simple, in fact, that it practically never happens just this way. If prices reacted exclusively on good or bad dividend news or expectations, the market would be far more static than it is. Still, earnings and the benefits there from that shower down on the stockholder are the basic premise of stock activity.
The biggest complicating factor is the general absence of hard information. It’s rare that a jump in earnings can be positively pin-pointed, or pin-pointed before a market rise has taken effect. As a result, most investors have to contend with a vast range of other investors’ hopes, guesses, anticipations, and facts.
Furthermore, the stocks believed to have the greatest potential for growth usually vary the general pattern. The Dows, Minneapolis Honeywells, Owens-Cornings, and Minnesota Minings have long since been pushed to levels where their dividend returns are virtually meaningless, and where perhaps even their growth potential has been completely discounted.
Still, these extremities were more marked when stocks generally were yielding 5 and 6 per cent. Now that so many yield 3 and under, the growth specials do not seem so unreasonable at less than 2.
If you are trading shares or Forex you can also benefit from software that can help you time your purchases and sales for maximum profit.
Tags:
Bells,
Bottoms,
Currencies,
Element,
Extra Point,
Extremes,
Flashing Lights,
Forex,
Generalities,
Industrial Groups,
Investor,
Judgment,
Maximum Profits,
Newcomers,
Objective,
Sixth Sense,
Stock Transactions,
Stocks,
Subjective Quality,
Tops
Related posts
Posted by admin under Help Profit | Comments (0)
July 8, 2010
The Approach To Realizing A Profit From Online Currency Trading
Some people are unable to stay focused when they participate in online currency trading. They have not yet developed a disciplined way of figuring their projections and are not able to rein themselves in when they see that they are losing money. The have no way planned to approach making a profit so they are unable to realize a profit from online currency trading.
These people are in an online currency trading limbo. Some people in the literary world might refer to it as writers block. The online currency trader has lost their perspective on how to approach trades that day in order to reap any kind of profit. They can only manage enough perspective to sit and watch the computer screen and see that their money is slipping away.
The online currency trader might feel this way because they have failed to meet a monetary goal that they set when they first started trading. If that income is not delivered when they expect it to be everyday, then they consider their online currency trades to be failures. The approach to realizing a profit from online currency trading requires people to see profit as profit and nothing more.
Emotion has no place in a business that places its success on the trends of the current online currency trading market. The values to various currencies will rise and fall throughout the day and night and once an order is placed, people only have the power to set a limit on their losses and have a stop order in place to ensure that all is not lost in the online currency trading process.
Some people take a logical approach to realizing a profit from online currency trading. They feel that they have prepared themselves to make decisions on the online currency trades that they have chosen to place, and are very logical to realize that the money could be lost in a matter of minutes. They are also very logical about the money that they could make if all of their preparations prove to be successful ones.
Knowledge is power and is most certainly one of the factors that is crucial in online currency trading practices. A baseball team owner would not offer a multi-million dollar contract to a player that they knew nothing about. An online currency trader would not trade in a foreign currency that they do not thoroughly understand. The economy of the country and their past trading practices are knowledge that can be used to turn a rapid profit.
Tags:
Computer Screen,
Currencies,
Currency Market,
Currency Trader,
Currency Trades,
Currency Trading,
Currency Values,
Current,
Decisions,
Emotion,
Limbo,
Logical Approach,
Losses,
Matter Of Minutes,
Money,
Online Trades,
Online Trading,
People Power,
Perspective,
Success
Related posts
Posted by admin under Help Profit | Comments (0)
April 27, 2010
People trade in a daily basis. Some trade their services for money, while others trade products like food, toys and other things for money. People trade to earn money to properly live their everyday lives.
This is why people work, why people put up businesses and why people trade in the financial market. Today, its all about money in order for you to give yourself and your family a comfortable life.
If you are considering making money aside from your day job or starting a career, you can do so by trading in Forex. Surprisingly, most people dont understand how Forex works but are still interested to trade in this financial market. Besides, people would really want to trade in the largest, the most liquid financial market in the world.
Forex operates 24 hours a day and 7 days a week with no centralized location unlike other financial markets. It involves all the currency in the world and trillions of dollars are being exchanged everyday in this market, thus, making it the worlds largest and the most liquid financial market in the world.
The Forex market promises traders a promising way to earn money. However, Forex also has its risk and it is a fact that people lose money trading in this market. But, there are also people who became millionaires in the Forex market almost overnight. Education is the key to start trading in the Forex market. Without the proper knowledge in Forex trading, chances are you will end up losing money.
First of all, before you trade in Forex, this market is the buying and selling of currencies. In simpler terms, you, as a Forex trader, will be purchasing one kind of currency against another kind of currency. This gave Forex a trend to trade in pairs.
If you traveled to another country, chances are, you traded your currency against the local countrys currency to enable you to buy things from that country. If you did this, you have a good idea on how Forex works.
If you want to trade in this ever liquid market, you have to get the best education possible in trading currencies. A good education will enable you to trade in Forex more effectively and increase your chances of earning a considerable amount of money. It is even known that lots of people have quit their day job to concentrate in Forex trading.
Getting a good education about Forex trading will also let you increase your chances of profiting and decrease the risks involved. In getting the proper education in Forex trading, you will also learn how to read Forex charts. Forex charts are one of the most important things you should learn in order to successfully trade in the Forex market. Without this knowledge, you are doomed to fail in this very liquid market.
Expert Forex traders said that the best way to learn Forex is by actually trading in the Forex market. For this, website developers and software developers have developed a program that you can use to practice trading Forex. There are websites available that will enable you to open a dummy Forex account where you can trade in a simulated Forex market using no money at all. With this kind of software, you can really learn the way Forex works. It is also a great program to get the feel of the Forex market and you can even consider it as a stepping stone to start trading in a real account.
Thanks to the internet and the advancement in technology, everyone can trade in this financial market. Unlike in the past, only the multi-national companies and financial institutions, such as banks are allowed to participate in the Forex market.
Trading Forex is relatively easy to start. All you need is a computer with an active internet connection (high speed internet), a funded Forex account, and a trading system.
Always remember beside the fact that Forex can give you the potential to earn a lot of money, the risks involved is also equally great. So, you should first read books about Forex trading that is readily available in the internet for purchase or for download. You have to learn about the major currencies traded in the market, about leverage, and also about minimizing the risks in trading.
Tags:
Centralized Location,
Currencies,
Currency,
Daily Basis,
Day Job,
Earn Money,
Everyday Lives,
Fact That People,
Financial Markets,
Food Toys,
Forex Market,
Forex Trader,
Liquid Market,
Millionaires,
Money Trading,
Money While Others,
Pairs,
Profits,
Proper Knowledge,
Trillions
Related posts
Posted by admin under Help Profit | Comments (0)
March 14, 2010
In this article I will explain to you how to develop a profitable day trading system in five steps:
Step 1: Select a market and a timeframe
Step 2: Define entry rules
Step 3: Define exit rules
Step 4: Evaluate your day trading system
Step 5: Improving the day trading system
Lets take a closer look at these steps.
Step 1: Select a market and a timeframe
Every market and every timeframe can be traded with a day trading system. But if you want to look at 50 different futures markets and 6 major timeframes (e.g. 5min, 10min, 15min, 30min, 60min and daily), then you need to evaluate 300 possible options. Here are some hints on how to limit your choices:
Though you can trade every futures markets, we recommend that you stick to the electronic markets (e.g. e-mini S&P and other indices, Treasury Bonds and Notes, Currencies, etc). Usually these markets are very liquid, and you wont have a problem entering and exiting a trade. Another advantage of electronic markets is lower commissions: Expect to pay at least half the commissions you pay on non-electronic markets. Sometimes the difference can be as high as 75%.
When you select a smaller timeframes (less than 60min) your average profit per trade is usually comparably low. On the other hand you get more trading opportunities. When trading on a larger timeframe your profits per trade will be bigger, but you will have less trading opportunities. Its up to you to decide which timeframe suits you best.
Smaller timeframes mean smaller profits, but usually smaller risk, too. When you are starting with a small trading account, then you might want to select a small timeframe to make sure that you are not overtrading your account.
Most profitable day trading systems use larger timeframes like daily and weekly. These systems work, too, but, be prepared for less trading action and bigger drawdowns.
Step 2: Define entry rules
Lets simplify the myths of entry rules:
Basically there are 2 different kinds of entry setups:
Trend-following
When prices are moving up, you buy, and when prices are going down, you sell.
Trend-fading
When prices are trading at an extreme (e.g. upper band of a channel), you sell, and you try to catch the small move while prices are moving back into normalcy. The same applies for selling.
In my opinion swing trading is actually one of the best trading strategies for the beginning trader to get his or her feet wet. By contrast, trend trading offers greater profit potential if a trader is able to catch a major market trend of weeks or months, but few are the traders with sufficient discipline to hold a position for that period of time without getting distracted.
Most indicators that you will find in your charting software belong to one of these two categories: You have either indicators for identifying trends (e.g. Moving Averages) or indicators that define overbought or oversold situations and therefore offer you a trade setup for a short term swing trade.
So dont become confused by all the possibilities of entering a trade. Just make sure that you understand why you are using a certain indicator or what the indicator is measuring. An example of a simple swing daytrading strategy can be found in the next chapter.
Step 3: Define exit rules
Lets keep it simple here, too: There are two different exit rules you want to apply:
Stop Loss Rules to protect your capital and
Profit Taking Exits to realize your profits
Both exit rules can be expressed in four ways:
A fixed dollar amount (e.g. $1,000)
A percentage of the current price (e.g. 1% of the entry price)
A percentage of the volatility (e.g. 50% of the average daily movement) or
A time stop (e.g. exit after 3 days)
We dont recommend using a fixed dollar amount, because markets are too different. For example, natural gas changes an average of a few thousand dollars per day per contract; however, Eurodollars change an average of a few hundred dollars a day per contract. You need to balance and normalize this difference when developing a day trading system and testing it on different markets. Thats why you should always use percentages for stops and profit targets (e.g. 1% stop) or a volatility stop instead of a fixed dollar amount.
A time stop gets you out of a trade if it is not moving in any direction, therefore freeing your capital for other trades.
Step 4: Evaluate your day trading system
The first figure to look for is the net profit. Obviously you want your system to generate profits. But dont be frustrated when during the development stage your day trading system shows a loss; try to reverse your entry signals. On our website www.rockwelltrading.com you already learned that trading is a zero sum game: So if you are going long at a certain price level, and you lose, then try to go short instead. Many times this is the easiest way to turn a losing system into a winning one.
The next figure you want to look at is the average profit per trade. Make sure this number is greater than slippage and commissions, and that it makes your day trading worthwhile. Day trading is all about risk and reward, and you want to make sure you get a decent reward for your risk.
Take a look at the Profit Factor (Gross Profit / Gross Loss). This will tell you how many dollars you are likely to win for every dollar you lose. The higher the profit factor the better the day trading system. A system should have a profit factor of 1.5 or more, but watch out when you see profit factors above 3.0, because it might be that you over-optimized the system.
Here are some more characteristics you might want to consider besides the net profit of a system:
Winning percentage
Many profitable day trading systems achieve a nice net profit with a rather small winning percentage, sometimes even below 30%. These systems follow the principle Cut your losses short and let your profits run. However, YOU need to decide whether you can stand 7 losers and only 3 winners in 10 trades. If you want to be right most of the time, then you should pick a system with a high winning percentage.
Number of Trades per Month
Do you need daily action? If you want to see something happening every day, then you should pick a day trading system with a high number of trades per month. Many profitable day trading systems generate only 2-3 trades per month, but if you are not patient enough to wait for it, then you should select a day trading system with a higher trading frequency.
Average Time in Trade
Some people get really nervous when they are in a trade. I have heard of people who cant even sleep at night when they have an open position. If thats you, then you should make sure that the average time in a trade is as short as possible. You might want to choose a system that does not hold any positions overnight.
Maximum Drawdown
A famous trader once said: If you want your system to double or triple your account, you should expect a drawdown of up to 30% on your way to trading riches. Not every trader can stand a 30% drawdown. Look at the maximum drawdown the system produced so far, and double it. If you can stand this drawdown, then you found the right day trading system. Why doubling? Remember: your worst drawdown is always ahead of you.
Most consecutive losses
The amount of most consecutive losses has a huge impact on your trading, especially when you are using certain types of money management techniques. Five or six consecutive losses can cause you a lot of trouble when using an aggressive money management.
In addition this number will help you to determine whether you have enough discipline to trade the system: Will you still trade the system after you have experienced 10 losses in a row? Its not unusual for a profitable trading system to have 10-12 losses in a row.
Step 5: Improving your system
There is a difference between improving and curve-fitting a system. You can improve your day trading system by testing different exit methods: If you are using a fixed stop, try a trailing stop instead. Add a time stop and evaluate the results again. Dont look at the net profit only; look also at the profit factor, average profit per trade and maximum drawdown. Many times you will see that the net profit slightly decreases when you add different stops, but the other figures might improve dramatically.
Dont fall into the trap of over-optimizing: You can eliminate almost all losers by adding enough rules. Simple example: If you see that on Tuesdays you had more losers than on the other weekdays, you might be tempted to add a filter that prevents your day trading system from entering trades on Tuesdays. Next you find that in January you had much worse results than in other months, so you add a filter that enters trades only from February December. You add more and more filters to avoid losses, and eventually you end up with a trading rule that I saw recently:
IF FVE > -1 And Regression Slope (Close , 35) / Close.35 * 100 > -.35 And Regression Slope (Close , 35) / Close.35 * 100 < .4 And Regression Slope (Close , 70) / Close.70 * 100 > -.4 And Regression Slope (Close , 70) / Close.70 * 100 < .4 And Regression Slope (Close , 170) / Close.170 * 100 > -.2 And MACD Diff (Close , 12 , 26 , 9) > -.003 And Not Tuesday And Not DayOfMonth = 12 and not Month = August and Time > 9:30 …
Though you eliminated all possibilities of losing (in the past) and this trading system is now producing fantastic profits, its very unlikely that it will continue to do so when it hits reality.
Authors name
Markus Heitkoetter
Author’s Info:
Markus Heitkoetter is a 19 year veteran of the markets and the CEO of Rockwell Trading. For more free information and tips and trick how to make consistent profits with online daytrading, visit his website www.rockwelltrading.com.
Tags:
Advantage,
Choices,
Closer Look,
Commissions,
Currencies,
Day Trading System,
Day Trading Systems,
Different Kinds,
Electronic Markets,
Five Steps,
Futures Markets,
Myths,
Profits,
Risk,
Step 1,
Step 2,
Step 3,
Suits,
Treasury Bonds
Related posts
Posted by admin under Help Profit | Comments (0)
March 7, 2010
There are two kinds of currency exchanging businesses today on the Internet. The most widely known is the Forex market where you can trade one world currency for another. The less widely known is the e-currency exchange market, where some companies and individuals make money by exchanging one e-currency for another.
Notice the difference. On the Forex market people make money speculating on the future price of currencies like Euros and Dollars. On the e-currencies exchanging business people make money directly when they exchange the e-currencies. Based on this fact it can be said that Forex is more risky but also more profitable than e-currency exchanges.
We will refer on this article to the e-currency exchanging business alone. Let’s start by describing what e-currencies are. There are many different kinds of e-currencies today on the Internet. Some of the most widely known include www.paypal.com, www.e-gold.com, www.e-bullion.com and www.netpay.tv.
So, how does his market works? Simple. Let’s say that you have e-gold and you want e-bullion. You visit the website of an online exchanger and request to exchange the funds. The exchanger keeps a percentage of the money to be exchanged. For example let’s say that he keeps 5%.
So, if you give the exchanger $1,000 in e-Gold he will keep $50 plus the amount e-Gold charges him to receive the funds. Then he will give you a little less than $950 of e-Bullion. This happens every day. There are thousands, millions of transactions going on.
How much money you make on this business depends of a few factors. First if you plan to receive large transactions or a large number of transactions per day then you will need lots of funds ready to stand the demand. Second, how many people know about you and your website.
You will need to invest on advertisement and promote your business. Third how reasonable are your exchanging rates compared to those of other exchanger. If you charge 10% per transaction that’s almost thievery.
Also keep in mind that you will have to comply with the rules and regulations of the jurisdiction you live in. These rules may change from place to place. Make sure you understand well the regulations about this business where you live.
The demand for world currencies like Euros and Dollars is Enormous. The demand for e-currencies exchanges is fairly high. In my opinion this business can be quiet profitable.
Think about it, when you are the e-currency exchanger you act like the bank. You are the market maker, the broker. These parties are the ones who make the money and almost never lose. You have the chance to do this on the e-currency market, but you need to take it as a business and not as a get rich quick scheme.
All businesses require planning, investing, marketing, etc. You can watch what other exchangers are doing and learn from them. Visit their websites and get an idea of what this business requires.
DXGold once seemed it would become the leader on this market. It allowed people to be merchants through their system and exchange e-currencies for others. Unfortunately it seems that they had problems with their system. They have recently moved into other areas of Internet marketing.
Anyway there is still hope for people that wants to make money on this business. The demand for e-currency exchanges is still fairly high. I think that this business could be profitable as many other businesses that you could start online. It all depends on how knowledgeable you are on this field and your dedication and motivation to make it work.
EasyWebRiches 2006
Tags:
Advertisement,
Business Money,
Business People,
Currencies,
Currency Exchange,
Currency Exchanges,
Currency Exchanging Business,
Currency Market,
Different Kinds,
E Bullion,
E Gold,
Exchange Market,
Forex Market,
Future Price,
Gold Bullion,
How Many People,
How Much Money,
Money Currency,
Two Kinds,
World Currency
Related posts
Posted by admin under Help Profit | Comments (0)
February 12, 2010
Forex Trading Videos Enable Traders To Learn To Profit Fast
The FX market is currently exploding in popularity with vast potentials for the future. Currencies are bought and sold freely around the world by both individual traders and large institutions. Established in 1970s, the market has gained grounds with the active participation of many countries. One can earn higher profits in this market with proper understanding and tactical plans.
Forex Trading Course Information
A Forex trading course is a systematic way of learning to trade Forex. The first and foremost thing to learn is that Forex trade involves two currencies. One currency of a country is bought by selling another currency. It is expressed like this USD/JPY, indicating the value of one USD against the value of Japanese Yen.
Normally, the rate has two values, one is the purchasing rate and the other is selling rate, with purchasing rate slightly lesser than the selling rate. The difference is called spread. The movement of price is expressed in Pips (short name for percentage in points). By convention, the value of pips is fixed with 4 decimals except in the above examples involving the currencies of USD and Japanese Yen, where it is in 3 decimals.
A Forex trading course not only covers the basic principles but also takes into account the details about the country economy a whole. The information about the economic condition of a country is learned under four broad categories viz., Gross Domestic Product, Consumer Price Index, industrial production and retails sales. The theoretical part of the course covers this.
Online trading and Forex trading videos
Online trading is a facility of trading in the market in its real time without the help of the brokers. It is achieved with the help of the internet. Forex trading videos demonstrate the online trading. Videos are one of the most effective training tools to explain the concept of trading. They are effectively used to impart training to the learners in the art of online trading.
In the videos, the mistakes and blunders are highlighted to demonstrate how costly it may prove to be later. The facts and figures of the market with the charts and the current market trends are well explained with the help of videos. For the people undergoing the training visuals seem to be more effective for aiding in grasping the knowledge about the market. Technical analysis, fundamental analysis and economic indicators are well explained in the video presentation of the training.
The advantage of video presentation is to allow the student to review the material many times at his or her convenience. Video training thoroughly covers the material the same each time unlike live seminars where the person delivering the lecture may miss something between the sessions
Forex trading videos have become the preferred delivery method for enabling traders to learn to consistently enter and exit profitable trades and create a successful Forex trading business.
Tags:
1970s,
Consumer Price Index,
Course Information,
Currencies,
Currency,
Decimals,
Economic Condition,
Effective Training,
Forex Trading Course,
Fx Market,
Gross Domestic Product,
Individual Traders,
Institutions,
Japanese Yen,
Popularity,
Profits,
Real Time,
Systematic Way,
Training Tools,
Usd Jpy
Related posts
Posted by admin under Help Profit | Comments (0)
February 10, 2010
Forex Trading: Calculating Profit And Loss In Foreign Currency Trading
The foreign exchange market, or Forex market, is an around-the-clock cash market where the currencies of nations are bought and sold. Forex trading is always done in currency pairs. For example, you buy Euros, paying with U.S. Dollars, or you sell Canadian Dollars for Japanese Yen. The value of your Forex investment increases or decreases because of changes in the currency exchange rate or Forex rate. These changes can occur at any time, and often result from economic and political events. Using a hypothetical Forex investment, this article shows you how to calculate profit and loss in Forex trading.
To understand how the exchange rate can affect the value of your Forex investment, you need to learn how to read a Forex quote. Forex quotes are always expressed in pairs. In the following example, your pair of currencies are the U.S. Dollar (USD) and the Canadian Dollar (CAD). The Forex quote, USD/CAD = 170.50, means that one U.S. Dollar is equal to 170.50 Canadian Dollars. The currency to the left of the “/” (USD in this example) is referred to as base currency and its value is always 1. The currency to the right of the “/” (CAD in this example) is referred to as the counter currency. In this example, one USD can buy 170.50 CAD, because it is the stronger of the two currencies. The U.S. Dollar is regarded as the central currency of the Forex market, and it is always treated as the base currency in any Forex quote where it is one of the pairs.
Let’s go now to our hypothetical Forex investment to show how you can profit or come up short in Forex trading. In this example, your pair of currencies are the U.S. Dollar and the Euro. The Forex rate of EUR/USD on August 26, 2003 was 1.0857, which means that one U.S. Dollar was equal to 1.0857 Euros, and was the weaker of the two currencies. If you had bought 1,000 Euros on that date, you would have paid $1,085.70.
One year later, the Forex rate of EUR/USD was 1.2083, which means that the value of the Euro increased in relation to the USD. If you had sold the 1,000 Euros one year later, you would have received $1,208.30, which is $122.60 more than what you had started with one year earlier.
Conversely, if the Forex rate one year later had been EUR/USD = 1.0576, the value of the Euro would have weakened in relation to the U.S. Dollar. If you had sold the 1,000 Euros at this Forex rate, you would have received $1,057.60, which is $28.10 less than what you had started out with one year earlier.
As with stocks and mutual funds, there is risk in Forex trading. The risk results from fluctuations in the currency exchange market. Investments with a low level of risk (for example, long-term government bonds) often have a low return. Investments with a higher level of risk (for example, Forex trading) can have a higher return. To achieve your short-term and long-term financial goals, you need to balance security and risk to the comfort level that works best for you.
Tags:
0857,
Base Currency,
Canadian Currency,
Canadian Dollar,
Canadian Dollars,
Central Currency,
Currencies,
Currency Exchange Rate,
Currency Market,
Currency Pairs,
Currency Quote,
Currency Rate,
Currency Value,
Decreases,
Foreign Currency Trading,
Foreign Exchange Market,
Investment Increases,
Japanese Yen,
Profit And Loss,
Trading Forex
Related posts
Posted by admin under Help Profit | Comments (0)