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Saturday, March 10, 2007
Friday, March 09, 2007
FOREX TRADING STRATEGIES IN A NUTSHELL
What you need to know about Forex trading strategies and how to trade currency। Simply put, Forex Trading is buying and selling of international currencies. The US dollar is almost always the base currency against which other currencies are bought and sold in real Forex trading. Of course, one's local currency can also be used as a base currency. In such a case it will be called a CROSS TRADE. Cross trading is then an exchange of two currencies where US dollar is not involved.
How to trade currency
Say, you got a tip or you suspect that the Japanese Yen might appreciate in value against US dollar in near future. The current exchange rate is ¥ 120 to a US dollar. You go to the bank and exchanged US$ 10,000 for ¥ 1,200,000.00
US$ 1।00 = ¥ 120.00 US$ 10,000.00 = (120*10,000) You will get: ¥ 1,200,000.00
Later on, as expected, the Yen appreciates by Five Yen to ¥ 115 to a US dollar. You then take your Yens back to the bank and exchanged them into US dollars. You will get US$ 10,434.78. This extra US$ 434.78 will then be your profit on top of your initial investment of US$ 10,000.
¥ 115.00 = US$ 1.00 ¥ 1,200,000.00 = (1/115)*1,200,000 = US$ 10,434.78
Initial Investment was: = US$ 10,000.00
Your PROFIT: = US$ 434।78
On the other hand, instead of appreciating, the Yen further weakens. After all, it was only an expectation that the Yen will appreciate, not a guaranty. Say, it weakens by Five Yen to ¥ 125 to a US dollar. Of course you now have a choice to either hold on to your Yens until it appreciates or exchange them back into US dollars. Suppose, you want to exchange them back into dollars for fears of further Yen weakness. You then take your Yens back to the bank and exchanged them into US dollars. You will get US$ 9,600.00. Your loss is US$ 400.00. Now your initial investment of US$ 10,000 is reduced to US$ 9,600.
¥ 125.00 = US$ 1.00 ¥ 1,200,000.00 = (1/125)*1,200,000 = US$ 9,600.00 Initial Investment was: = US$ 10,000.00 Your LOSS: = (-US$ 400.00)
Forex Trading is neither gambling nor should it be perceived as such. In gambling, once you place a bet you cannot withdraw from a losing situation. You either win or loose. On the other hand, with Forex trading, you decide how much you are prepared to lose or wait until you are in profit. Forex trading strategies provide several means to accomplish just that.
Hence, one can trade Forex euphorically or in an organized manner. The tools and techniques are there to help you learn how to trade currency, it's up to you to use them for your best interest.