Learning Forex Basics

To know Point (Pip) and Contract Size (Lot)

Point (pip) is the smallest unit price movements in the forex. One point (pip) for the pair GBP / USD is 0.0001, while one point for the pair USD / JPY is 0.01. Example: Pair GBP / USD, the movement of 1.8500 to 1.8550 is 50 points. Value per point (pip) depends on the number of contract size (lot) and the currency used.

Contract Size (LOT) is the smallest quantity of forex trading. In general, contract size (lot) is often used is the Standard Lot, Mini Lot and Micro Lot Standard Lot is $ 100,000, Mini Lot is $ 10,000 and Micro Lot is $ 1000. If broker forex supports the Standard and Mini Lot, it means you can trade with a number of multiples of 100,000 and 10,000. For example: $ 30,000, $ 120,000, and others.

Quote / rate currency

Quote forex consists of the price of 2 prices, ie lower price (bid) and a higher price (Ask / Offer).

Bid is the price at which the broker forex (dealer) to buy from you. While Ask / Offer is the price at which the broker forex (dealer) will sell to you. Bid is always lower than the Ask. The difference in price Bid and Ask is the Spread. The smaller the spread is the dealer forex more profitable trader.

Example: Quote EUR / USD Bid / Ask: 1.2293/96. Means that the selling price to your broker 1.2293 and the purchase price of the broker is 1.2296. spreads 1.2296-1.2293 is 3 points.

Please note:

• When you open a position Buy (Long), it means you open the position with the price ask, and then will be closed (close / liquid and including stop loss and target profit) use the price bid.

• When you open a position Sell (Short), means that you open the position with the price bid, and then will be closed (close / liquid and including stop loss and target profit) use the price ask.

What is the position of Long and Short?

Position LONG or open BUY (Buy) is a position in which a trader buys a currency at a specified price and aims to sell later at higher prices. So investors are able to profit from market to rise (graph pair up).

Suppose you buy in a position 1.1500 and then sold at 1.1525 then you will benefit as many as 25 points / pips.

LONG or open BUY is expecting the price of a currency pair (pair) NAIK to profit (graph pair up)

Example: Long (BUY) EUR / USD then you expect the graph EUR / USD is UP or Euro strengthened against the USD. Rising price of a pair can you interpret the currency in FRONT pair is strengthened against currencies in the back pair is.

Example: Graph the price Pair EUR / USD NAIK it means Euro strengthened against the USD. Prices used as OPEN BUY / LONG is the purchase price (ASK) and the prices used when you close / liquid is the selling price (BID). To ease Position LONG often abbreviated BUY (buy)

Position SHORT or open-SELL (Sell) is the position in which a trader sells a currency at a certain price and aims to buy later at a lower price. So investors are to benefit from the market down (graph pair down).

SHORT or open SELL is expecting the price of a currency pair (pair) DOWN for profit.

Example: Short (SELL) EUR / USD then you expect the graph EUR / USD is DOWN or Euro weakening against the USD. The fall in the price of a pair can you interpret the currency in FRONT pair is weakening against foreign currencies on the back pair is.

Example: Graph the price Pair EUR / USD is DOWN then it means Euro weakening against the USD. Prices used as OPEN SELL / SHORT is the selling price (BID) and the prices used when you close / liquid is the purchase price (ASK). For ease of Position SHORT often abbreviated SELL (sell).

High, Low, Open, Close

High: It is the highest price that period from the beginning of the period (open) until the end of the period (close).

Low: It is the lowest price period from the early period (open) until the end of the period (close).

Open: It is the price of the opening period.

Close: It is the closing price of that period

What is a Market Order?

Market orders mean you'll buy price "ask" that apply on the spot, or sell at a price "bid" prevailing at that time. Suppose you'd bought a pair EUR / USD, the market was showing 1.2934/1.2938. This means your broker would buy the EUR / USD from you at a price of 1.2934 and sell to you for $ 1.2938.

Stop Order and Limit Order (Pending Order)

Pending orders are orders automatically to open the position of Long / Short only when the price of your order / message is reached. If the price of your order is not reached, then the pending order will still be active and will wait until the price of your order untouched. Pending orders can be divided into 2 is Pending Order Stop and Pending Order Limit.

If you just want to buy in the ON current prices, use the Stop Order Buy. And if you just want to sell at BELOW the current price, use the Stop Order Sell.

If you just want to buy in the DOWN current prices, use the Limit Order Buy. And if you just want to sell in the ON current prices, use the Limit Order Sell.

Example: Price ASK now is 2.0000 and you just want to buy (LONG) if the price moves to 2.0050 then you can use a Stop Order Buy. (Remember the open buy / Long price used is the price of ASK!)

Example: The price BID now is 2.0000 and you just want to sell (SHORT) if the price moves to 1.9950 then you can use a Stop Order Sell. (Remember the open sell / Short price used is the price BID!)

Example: Price ASK now is 2.0000 and you just want to buy (LONG) if the price moves to 1.9950 then you can use the Limit Order Buy. (Remember the open buy / Long price used is the price of ASK!)

Example: The price BID now is 2.0000 and you just want to sell (SHORT) if the price moves to 2.0050 then you can use the Limit Order Sell. (Remember the open sell / Short price used is the price BID!)

Calculating Profit / Loss (Profit / Loss)

Price movements smallest measured in units of points / pips. The value of each point will vary according to type of currency pairs (pair), the contract size is used. Contract size is usually specified in units of lots, the Standard lot (100,000), Mini lot (10,000), or Micro lot (1000).

For currencies that ends in ... / USD for example (EUR / USD, GBP / USD, and AUD / USD) how to calculate profit / loss are as follows:

(Selling Price - Buying Price) x contract size x number of lots = Profit / Loss

Example:

Buy 3 standard lot EUR / USD 1.2000

Sell (liquid) 3 lot EUR / USD 1.2010

Profit = (1.2010 - 1.2000) x 100.000 x 3 = $ 3002.

Sell 1 standard lot GBP / USD 2.0001

Buy (liquid) 1 lot GBP / USD 2.0000

Profit = (1.2001 - 1.2000) x 100.000 x 1 = $ 10

From the conclusions above, it means a profit of 1 point for standard lot (100K) currency ends ... / USD profit is $ 10. The value of 1 point for 1 lot of mini (10K) is $ 1 and for micro lots (1K) per point is worth $ 0.1

For currency beginning CAD / ... for example (USD / JPY and USD / CHF) how to calculate profit / loss are as follows:

[(Sales Price - Purchase price) / Price Liquidation] x contract size x number of lots = Profit / Loss

Example:

Buy 1 standard lot USD / JPY 110.00

Sell (liquid) 1 lot USD / JPY 110.01

Profit = [(110.01 - 110.00) / 110.01] x 100.000 x 1 = $ 9.09

For the currency mix of the instance (EUR / JPY) how to calculate profit / loss are as follows:

[(Sales Price - Purchase price) / price Closing USD / JPY] x contract size x number of lots = Profit / Loss

Example:

Buy 1 standard lot EUR / JPY 162.70

Sell (liquid) 1 lot of EUR / JPY 162.71

Closing price of USD / JPY is 118.10

Profit = [(162.71 - 162.70) / 118.10] x 100.000 x 1 = $ 8.47

Margin and Leverage

The term leverage (factor lever, usually in a ratio of 1:50, 1:100, 1:250, or 1:500) in the forex margin trading means that if you want to trading for $ 10,000, you do not have to provide $ 10,000 but it was enough, providing margin $ 100 ( leverage 1:100) as guarantee funds to your broker.

So the margin could mean a guarantee of detained temporarily by the broker when you make a trade. Margin will be refunded to your account after you close / liquid position you open. Suppose you have the cash $ 1000 in broker who has Leverage 1:100. This means you can trade with any amount up to approximately $ 100,000 (or nearly 100X as much capital you). This also means that to use the contract size $ 100,000 you'll need a 1% margin of $ 1000.Contoh else: You have a capital $ 500 and your broker have the leverage 1:100, then if you want to buy using 1 lot of mini (10,000) then the margin on hold is 1% of the total contract sizenya (10,000) ie (1% x 10,000) or use a margin of $ 100. This means that investment for you to be detained temporarily and used as collateral / margin by the brokers is $ 100, the remaining $ 400 is used to hold losses you. And if one day you have to liquidate these positions so the margin $ 100 this will be returned to you. The advantage of the leverage is with capital less you can trade with a number of contract size / lot the same as if you did not use leverage. Or it can be said, with capital as much, you can use the contract size is greater than not using the leverage. So with the capital the same, you have a chance to get profit per pip is greater.

Take Profit and Stop Loss

Take profit is order to liquidate a position automatically at a certain price when the trader has obtained a number of profit.

If you Open Buy / Long the target is located at THE price of your open positions Open Buy / Long. (Remember! Open Buy / Long using price KSA while Target or Stop Loss prices BID)

Example: Buy EUR / USD 1.2000, Target Profit 1.2050 (to target 50 points profit)

If you Open Sell / Short then the target is located in BELOW the price you open a position Open Sell / Short. (Remember! Open Sell / Short uses BID price, while Target or Stop Loss prices ASK)

Example: Sell EUR / USD 1.2050, Target Profit 1.2000 (to target 50 points profit)

Stop Loss is the orders to liquidate a position automatically at a certain price to limit losses that might occur if the market moves against the trader's position.

If you Open Buy / Long then the stop loss is at BELOW the price you open a position Open Buy / Long. (Remember! Open Buy / Long using price KSA while Target or Stop Loss prices BID)

For example: Buy EUR / USD 1.2050, Stop Loss 1.2000 (for stop loss 50 points loss)

If you Open Sell / Short then the stop loss is at THE price of your open positions Open Sell / Short. (Remember! Open Sell / Short uses BID price, while Target or Stop Loss prices ASK)

Example: Sell EUR / USD 1.2000, Stop Loss 1.2050 (for stop loss 50 points loss)

Function Leverage Against Security Margin

For example, deposit the initial capital you for $ 300. If you open 1 position trading mini-lots (10000) requires margin: 10000 (mini lot) x 0002 (leverage 1:500) = $ 20. So capital is being held temporarily as collateral (margin) to open a 1 mini lot GBP / USD is $ 20. So the rest of the margin you to stop loss is: $ 300 - $ 20 = $ 280.

Profit from the currency GBP / USD for mini lot (10000) is $ 1 per point (pip). So the example above (the margin remains is $ 280) can be calculated force you to stop loss is $ 280 (margin left) divided by profit per point (pip) = 1 ie: 280 / 1 = 280 points. So the strength to withstand loss maximum (before the margin call) is 280 points with the assumption that the currency you use is the GBP / USD with a profit of $ 1/point.

Compare with leverage 1:100, which means you must provide a margin of 10000 x 0.01, ie: $ 100 to open 1 position mini lot (10000) currency GBP / USD. Margin was left to hold the loss is 300 to 100 = 200. Profit per point GBP / USD mini lot is $ 1. So that your strength to withstand losses is 200 / 1 = 200 points only.

Conclusion: Leverage function to double the value of your profits with the initial capital is relatively small, while increasing the power you hold loss.

Margin Call

Margin call means the liquidation of "forced" by the broker because your account does not have sufficient funds to cover / cover your position is lost.

For example, deposit the initial capital you for $ 300. If you open 1 position trading mini-lots (10000) requires margin: 10000 (mini lot) x 0002 (leverage 1:500) = $ 20. So capital is being held temporarily as collateral (margin) to open a 1 mini lot GBP / USD is $ 20. So the rest of the margin you to stop loss is: $ 300 - $ 20 = $ 280.

When the floating loss (loss) you reach $ 280 then there is no margin / money left over to keep losses (available margin = 0), so that one position will be closed automatically by the broker (margin of $ 20 will be returned so that margin you grow $ 20)