Key terms and concepts Forex

Exchange rate - the price of the currency of one country expressed in the currency of another country, with sales transactions. Such a price can be set based on supply and demand for a currency in a free market, or to be strictly regulated by the decision of the Government or its main financial body, usually the central bank.

Types of exchange

Direct quotation - the number of national currency per one unit of foreign

Contact (indirect) quote - the number of foreign currency per unit of national.
Here, many traders there is confusion in my head. For example, for residents of Russia quotation RUB / USD is indirect, USD / RUB - straight. And what is for Russians quotation EUR / USD? It is clear that for the Europeans, indirect, for Americans - a straight line. And for us?

Many will say - indirect. The fact is that already had the next score - is the U.S. dollar and everything else. From this perspective, EUR / USD for us indirect quotation, USD / JPY - straight. While this is, as you see, is not very correct statement.
Currencies FOREX Market
Major currencies (majors)

* USD - U.S. Dollar
* EUR - International European currency, euro
* AUD - aussie (axis) Australian Dollar
* NZD - kiwi (kiwi) novozenlandsky dollar
* GBP = STG (cable, sterling) sterling
* CHF = SWF (swissie) Swiss Franc
* JPY = YEN Japanese Yen

Cross Rates

This relationship between the two currencies, which derives from their course in relation to the rate of the third currency. With operations in the global market are often used cross-rates with the U.S. dollar as the U.S. dollar is not only a major reserve currency, and currency transactions in the majority of currency transactions.

Ask proposed currency looks something like this: EUR / USD = 1.0150 Bid (offer price); 1.0155 Ask (demand price).

This means that the trader can sell euros for dollars at the exchange rate (price) of 1.0150, and buy euros for dollars at the rate of 1.0155. The difference between the prices of buying and selling is called Spread (spread). In this case it is 5 points (0.0005).

Item (point or pips) - is the minimum allowable price change. For example a price change from 1.3450 to 1.3455 - a change of 5 pips. Spread (spread) - the difference between the purchase price and sale price: 1.3460 - 1.3450 = 10 points (pts). Standard Bank spread from 5 to 10 pts.

Big figure (a big figure, I just - the figure) - to change the prices of 100 points. For example, changing quotes from 1.3460 to 1.3560.

Boring topic went, numbers, formulas. We must be patient. Terminology - 50% of any science. There will be more complicated, where - at the level of grade 6 school.

In Forex, as repeatedly mentioned above, sell the currency, that is buying one currency for another. Or buy another for one. Let Let us examine this in detail. Suppose you want to bargain on a pair euro / dollar (EUR / USD) standard lot 100000. You can choose one of two operations - to buy (Buy), or to sell (Sell). Remember tightly these terms, they sound in Russian something like this: buy and Sell.

When you buy (Buy) you buy 100,000 euros for what - the number of dollars. What? This is determined by the price, or, more correctly, the value of such currency pair from your broker. For example, the purchase rate EUR / USD now 1.0500. So for the 100,000 Euros you will pay 1.0500 * 100000 = 105000 U.S. dollars. Another dive - Your broker for this transaction will provide you with a loan of 105,000 dollars, and you buy from the same company for the money 100000 euros. Do not hurry to rejoice and grope her pocket. These thousands will remain with the broker for you they are virtual (as it is, in fact, you do not have them).

Congratulations! You "entered the market" or "open position". For many it is - as in cold water jump. Now the fun begins: the exchange rate fluctuates all the time. If the EUR / USD rose (rose in price, stronger, increased), for example paragraphs 10 to a mark 1.0510, (it can happen in a few seconds), at the closing position (as a sine qua non of margin trading, see above), selling purchased when opening a position 100000 Euros, you can bail out the already 105,100 U.S. dollars, ie $ 100 more! This $ 100 will be been added to your account. Excellent. But the day is not Sunday! ". If the rate falls to ten points before the selling price of 1.0490, the closing position, you bail out of 104,900 dollars. But then you took a loan for 105,000 dollars, so the difference in the $ 100 will be deducted, as they say, without further authorization, from your trading account. That such realism is obtained ...

From the above example it becomes clear how to calculate the cost of one point (pips):

Profit / Loss = (sale price - purchase price) * lot * of value of lots.

The result obtained in kontrvalyute, in the above example is United States dollars. And if traded, for example, USD / CHF? Then the result is in Swiss francs. What to do with them? Some brokers, mainly banks, call your trading account a multi-currency, and they gradually build up the yen, francs, pounds, etc. Then, usually at the end of the month, they will convert all currencies into dollars at the average (not always the best for you) exchange rate. Some brokers immediately after closing the position, will convert the profit / loss in dollars and add / take away to your trading account. This formula looks like

Profit / Loss = (sale price - purchase price) * lot * value of the number of lots / course kontrvalyuty to the dollar.

(I think everyone knows that * - means multiply, / - share).

So, if you opened the position of Buy and rate goes up - the profit, down - a loss. And if you opened the position Sell? All well, but the contrary. This means that you have sold 100,000 euros for 105,000 dollars. To close the position you need to buy exactly 100000 euros. And, if the rate dropped by 10 basis points to 1.0490, you will pay at closing positions 104900 U.S. dollars, ie $ 100 less. These "extra" $ 100 will die down profit on your account. Do explains that when the rate for closing the position at the rate of 1.0510 you require additional $ 100, which, of course, will be charged to your account. Thus, if you opened Sell position and rate goes up - you have produced a loss, down - profits.

It is very important that the profit or loss is added to your account only when closing the position, not before. Before that, he has been reflected in ekyuti - floating deposit, this concept we have considered earlier.

Everything is simple and understandable. But, not only as to obscure the traders, there is another practice, and you always run with it. Under the conditions (contract) broker stated that the foregoing relates only to trade foreign currencies with indirect quotations, for the EUR / USD and GBP / USD. For others (such as USD / CHF, USD / JPY, etc.), the following rule: when opening a position is bought and sold is always kontrvalyuta for U.S. dollars (apparently, they are too lazy to convert the result in another currency). And then everything turned upside down: for example, open position Buy USD / JPY rate at 110.50. At the same time you sell 100,000 U.S. dollars, buying 11,050,000 yen. Now, with an increase in the dollar for the yen to 110.60 (the chart USD / JPY up) by selling previously purchased 11,050,000 yen, you get 11050000 / 110.60 = 99909.58 U.S. dollars, ie 90.42 dollars less than that, there is formed a loss! And if a dollar decline by 10 basis points to 110.40, you get profit 11050000/110.40 = 100090.58 U.S. dollars, ie 90.58 U.S. dollars more. This is your profit. Incidentally, note that with decreasing value of the dollar (the chart goes down), click "heavier.

Thus, for transactions with direct quotes Buy - profit is formed down the schedule, loss - up. When Sell - vice versa. Very uncomfortable. I myself, when he began to work, months 3 confused. Incidentally, on the sites of brokers on this is nowhere explicitly stated, sure to check the contract and explained by e-mail. If a long answer or refer to the page n the handbook, send, in turn, broker away and never come back. What will happen when any financial dispute?

To complete the calculations, we consider two more parameters. This commission and overnight.

Naturally, the loan broker gives you not free. For the use of credit, it takes a commission. This, in fact, something with which the profit the broker, otherwise why would he all of this headache? 5 years ago the commission was about 30 - 50 dollars with one standard lot. Now there is a struggle for the client between brokerage companies, they reduce the commission, and even some do not take at all. How do they profit? This talk, when we discuss the brokers.

A viable today, I think 1.2 points Commission. Under such conditions, (2 points Commission), for example, when trading the EUR / USD Spread of 5 points, do not be surprised that, immediately after the opening of a position with one lot to 100000, you will have to show -70 dollars (7 points), loss (Loss) .

Basically, you can keep an open position as long as they wished, at least until the deposit allows. But there is one nuance. It is believed that the loan taken from your broker, the bank is taken from other (national) banks, and for him to pay. This agent performs two opposite direction of the transaction with the same sum, different dates of value date (Tom - tomorrow, and Spot - the second business day) and slightly different rates. Rollover - is an artificial closure of the open positions on a value date and the simultaneous opening of a similar position to the next value date at a price reflecting the difference in interest rates between the currencies under consideration.

Depending on the direction of the position (Buy or Sell) the client receives or pays a certain sum for the transfer of positions (from a few tenths of a point to a few points). When the position is moved from Friday to Monday (we mean the value date), this amount increases by approximately threefold.

Why the client pays or receives for the transfer of positions? Because at the conclusion of the deal, he received a loan in foreign currency, which sells, and must pay for this interest. At the same time he put on deposit the bought currency, and should receive interest on this deposit. Interest rates for different currencies, so there is a difference, which is taken into account when transferring positions. If the client sold the currency with higher interest rate, it will pay for the transfer position. If he bought the currency with higher interest rate, the broker will pay him for the position transfer.

As a result, the majority of currencies every day with your ekyuti takes approximately 2 to $ 6 (depending on currency) per lot in 100,000 units of base currency, and some - is added (much less common and a few dozen cents). This is all reflected in the tables provided by the broker.

Some brokers simply take away a fixed amount every night, sometimes dramatically, thereby forcing the trader to work on short time intervals (more often working client opens a position, the more he pays the commission and the more likely it will destroy your deposit) .4