Forex Basics - Part Two

FOREX MARKET BASICS PART TWO

INVESTMENT ACCOUNT

Imagine that you have deposited $ 5.000 in the account with your broker, or what is known as BALANCE, and you want to market to buy $ 100.000 euros. Well your account, your broker will take to ensure its operation only 1.000 usd. This $ 1000 is what is called the margin used or Used Margin The difference between your balance 5.000 and 1.000 of range used, is called Usable Usable Margin or Margin, which in this case is $ 4.000. This means that you can have that position as long as their operation does not generate a loss greater than $ 4.000. As you probably noticed, there is great potential in this capacity that they give you to leverage their operations, but this potential can play in his favor and against, so you must be very responsible with the management of its operations to prevent a small movement in the value of your currency, you may suffer a loss that left him without the ability to continue investing. Once you have opened an operation, you will want to know one more fact in his account, which is called Equity.

The value of the Equity accounts available that you have in your account, should close its operation at that time.

For the same reason that all those involved in the Forex, it is with large amounts of money (even when they are leveraged), a slip in the price of a penny in an operation one hundred thousand dollars could mean a leap as great as approximately $ 1.000, the minimum change in price is usually recorded one ten thousandth of its value, this minimum recordable movement known as Price Interest Point or Pip. So that you will find that a Forex Euro price does not vary, for example, 1.20 to 1.21, but it will make it more gradually from 1.2000 to 1.2001 first, and so on. So that by the movement of one pip, your account will vary around 10 dollars for every $ 100.000 you decide to operate. On an average day the Forex can move between 60 and 120 pips, although there are few days when the market moves less than that, and there are days when it moves. With this information, let me put an example of a typical negotiation. You determine that the pound will increase in value, so that you think would be a good deal buying pounds for dollars, and decides that it will operate 100.000 pounds this time.

So when you press the Buy GBP / USD, a screen that tells you the current selling value of the pound is 1.2835, and includes a portion that you specify how much to buy, as we said you write 100.000 because that was the amount it had decided to set up, press the confirm button and presto, you have already purchased 100.000 pounds in the market. At the time you do this, you will see that in their platform or program to operate are the following:

Balance

Equity

Used Margin

Usable Margin

Profit / Loss

Open Trade

5.000

4966

1283.50

3682.50

-40.00

B 100,000 GBP

Say about 3 hours later you notice that the pound has reached the value of 1.2875 and so you know, no longer expected to continue to rise so you want to liquidate its operations. Just before you click the Close button Trade, you will see the following information on your screen:

Balance

Equity

Used Margin

Usable Margin

Profit / Loss

Open Trade

5.000

5400

1283.50

4116.50

+400.00

B 100,000 GBP

Da click the button to confirm where they ask: Confirm to Sell at 1.2875 7911.75 GBP? and it automatically after you see the following information appear on your screen:

Balance

Equity

Used Margin

Usable Margin

Profit / Loss

Open Trade

5.400

5400

0

5400



It should be noted that if the value of the pound had fallen instead of rising, you have suffered a loss. Also in this example you might note that even right before closing your transaction, the account balance had not moved, only changed once closed its operation. But so you could know how much it would close your account if its operation, provided this data remained Equity. Usually these issues are a little complicated at first, but we invite you to open a demo account or practice, so you can try opening and closing operations with play money and become more familiar with this information.