1. Trading Goal
The goal of trading at every market is to buy the product at lower price, and to sell it at higher. The global foreign exchange (Forex) market is not an exception. The product at this market is exchange rate of different national currencies.
To perform the settlements between the partners from different countries, international settlements, speculative operations etc., the world banks perform currency exchange operations at Forex. Depending on trading, economic and other indicators, interest rate, central bank policy, time of the day, preferences and expectations of the stock market participants, on different reasons, the quotes, i.e. currency prices, are always in motion.
The goal of trader is to predict the direction of currency price dynamic, and to buy the currency, the price of which is increasing, or to sell the currency, the price of which is decreasing, and then through reverse transaction to get profit.
Our Dealing Center provides you with the opportunity to work with the MetaTrader<> and AFM (Akmos FOREX Master) program pack, which offers the currency quotes of different bank and leading global stock exchanges in real time — Forex market participants. At the same time, here you can get the current price charts for each currency, and latest economic news that can have direct or indirect impact on currency rates in future.
Finally, you have special trade account allowing to buy and sell the selected currencies. And even if you have US Dollars on youê trading account, you can start trading from selling Euro, Yen and other tools, though you didn't buy them.
2. Currency Notation
There is a three-letter code assigned to each currency. E.g. US Dollar code — USD (United States Dollar), Euro code — EUR (EURo), Swiss Frank — CHF (Confederation Helvetica Franc), Japanese Yen — JPY (JaPanese Yen), UK Pound — GBP (Great British Pound). The currency codes are defined by the ISO-4217 standard. Usually they are defined from two-letter ISO-3166 country code and first letter of the currency. There are not many exceptions, particularly, European currency euro represented by EUR, and ruble represented by RUB, and not RUR, as could be expected.
Exchange rates reflect the relation of currencies of different countries to each other. Exchange rate codes are represented in 6-letter words made of two 3-letter currency code. First, usually, goes the code of the more expensive currency. The quotes are denominated in the units of the second currency for the unit of the first currency. For example, USDCHF (USD–CHF) reflects the amount of Swiss franks for one US Dollar, and GBPUSD (GBP–USD), on the contrary, how many US Dollars you need to pay for one British Pound. For more details of financial toll codes, see the specific table.
3. How to Read Quotes
Quotes are usually showed in 5-character number. For example, USDJPY = 114.90 means that 1 US Dollar is equal to 114.90 of Japanese Yens (i.e. for 1 dollar you can get that amount of yen upon buying and selling). Besides, GBPUSD = 2.0252 means that 1 British Pound is equal to 2.0252 US Dollars. In general, of the quote XXXYYY = Z, it means that you can get for one XXX unit Z units of YYY.
When the quote is changing, e.g. USDJPY = 114.92 to USDJPY = 114.93, or GBPUSD = 2.0254 to 2.0255, the price has changed by one point. According to the above mentioned, in this example Yen got DEPRECITED by one point, and Pound APPRECITED by one point.
According to the above mentioned, only the charts of Euro (EURUSD) and British Pound (GBPUSD), i.e. currencies with “direct” quote, reflect the real price movement (i.e. chart goes higher – the price is higher), and the appreciation ((i.e. chart goes higher) for USDJPY and USDCHF (currencies with “reverse” quote) means not increase, but decrease of its quotes (price).
4. BID and ASK prices
It's understood that any transaction is executed at exact price, while Quote Spread Sheet table has three prices for each price, e.g.:
Each Forex market participant in each transaction acts as either SELLER of the currency, or BUYER. And the seller offers the higher price, e.g. GBPUSD at 2.0254, and the buyer asks the lower price, e.g. GBPUSD at 2.0250. Thus, the offer price à seller is called ASK, and he price of buyer — BID. Consequently, if you assume GBPUSD will appreciate (your chart shows that GBPUSD curve goes higher), than you decide to buy pound while its cheaper, in order to sell it higher. You can buy (this operation is called BUY) only from the seller who will offer it at ASK price. When you sell pound (this operation is called SELL), the buyer will offer for it BID price (it works for all currencies). This clearly implies that if you OPENED position (the operation is called OPEN), i.e. executed BUY GBPUSD, and want to CLOSE it right away (the operation is called CLOSE), i.e. to sell the just bought pounds, you can make it only with the loss equal to the one in any foreign exchange office. Consequently, in order to get profit, the move of the currency price in the desired direction should exceed the difference between BID and ASK. The third value is called LAST — it represents the average value between the last BID and ASK at Forex market.
As stipulated in Section 3, only currencies with the direct quote appreciate when charts go higher. It's evident that the rule, under which the BUY operation during move higher brings profit for some currencies and loss for others, will be inconvenient. Thus, upon execution BUY operation for reverse quote currencies, you buy not the currency, but US Dollar, and the currency is sold. For example, BUY USDCHF at 1.1724 buys 100,000 US Dollars at 117,240 Swiss Franks. Thus, BUY operation always brings profit when the chart moves up, and SELL operation — when chart moves down.
To sum up, OPEN BUY (up) executes at ASK price, and CLOSE — at BID price; OPEN SELL (down) — at BID price, and CLOSE — at ASK price.
Sometimes the quotes can be shown in pair, e.g. 114.88/92. Such form of notation reflects the BID/ASK pair. First, the BID value is written, and then the last two numbers of ASK quote. Knowing that ASK exceeds BID, and that the difference between them is more than 100 points, you can always explicitly determine the value of second quote. In this case ASK = 114.92.
5. STOP and LIMIT orders
Now it's time to learn more about useful trade tools that allow in some way protect you from unexpected losses and to fix the planned profit.
These are STOP and LIMIT. You can any time (during market working hours) put the order to close the open position when the price reaches the specific value. For example, you open a position, expecting that quotes will go up (on the chart). Besides, in order to secure oneself from the significant losses when the currency sharply moves lower, especially when you either do not control, or can lose control of the market, you put STOP, i.e. indicate the price lower than the current value, at which your position should be closed without additional orders. By analogy, if you opened down, you indicate the price higher the current value. You should take into consideration that if STOP will be too close to the current value, than the incidental price jump may close with loss the correctly opened position, and if it will be too far — the losses may be too serious. LIMIT, in turn, is the specified quote which when reached will be closed with profit, i.e. the LIMIT quote is always higher than the current value, if you trade up, and lower — if you trade down.
There is a very widespread mistake that is made by many beginners. You need to remember for which quote — BID or ASK — the order shall be executed. Let's see the example of BUY position. As we said before, the BUY position is opened at ASK, and closed at BID, i.e. STOP or LIMIT will be executed only when BID reaches the specified price. As ASK on charts is always higher than BID, than chart HIGH is always ASK, and LOW — BID. Thus, the chart shall go through LIMIT for a spread value, before LIMIT is executed. STOP will likely to be executed as soon as the chart touches the price. As a rule, the beginners are very surprised to see that their LIMIT was not triggered, despite the chart HIGH is several points higher than the LIMIT price. It should be like that, as HIGH shall be higher than LIMIT by a value not less than spread.
Another widespread mistake is that trader doesn't differ the indicative charts built based on information quotes, i.e. received from hundreds, or even thousands banks and brokers, from quotes of specific company with which he/she works.êîòèðîâêàìè êîíêðåòíîé êîìïàíèè, ñ êîòîðîé îí ðàáîòàåò. The indicative charts have more frequent quotes and broader dispersion than at each of the brokers. Besides, different brokers have different indicative charts due to different providers used for chart building. Thus, to understand why some order was triggered or not triggered, you need to observe the charts from brokers which you work with. And you'd better build the chart only by its own, if possible, quotes. You need to indicate “AKM” source code in AFMCharts.