Principles of Forex Trading

Forex trading is the buying of one currency and simultaneously selling another currency. Therefore, it is called Forex currency pairs, EUR / USD, EUR / JPY, USD / CHF …. For active investors are the most interesting majors: USD, JPY, EUR, GBP, CHF, CAD and AUD. More than 80% of all global transactions take place on currency pairs such currency.

In Forex trading is the first currency is always the base currency (eg EUR EUR / USD, the GBP in GBP / USD, …). Standard contracts have a value of 100,000 units in the base currency. Mini contracts have a value of 10,000 units. Micro contracts have a value of 1,000 units. In a standard contract is worth 10 of Pip, a mini-treaty and a treaty with a Micro 0.1.

Example: EUR / USD
A standard contract is worth EUR 100,000. The value of a pip is USD 10
A mini contract is worth EUR 10,000. The value of a pip is USD 1
A micro contract is worth EUR 1,000. The value of a pip is USD 0.1.

Like most other financial products are traded in foreign exchange on the basis of bid and Askkurs. The bid is the price at which your broker buys you a motto. The ask is the price at which he sells you a motto. From the perspective of traders, this means that Bid is the price at which you can sell a currency at your broker. Ask is the price at which you can buy your broker a currency.

Example: Forex Purchase Transaction EUR / USD

We think that the EUR will rise against the USD. So we expect that on the one hand, the EUR will be stronger on the other hand, the USD weaker. This means that we expect more USD EUR receive for the same amount. To take advantage of them, may we buy now EUR / USD, in order to sell it later, hopefully at a higher price you can.

We buy a standard contract to 1.3720 and thus open up our position. Our theory has come true. To close the position, we sell a standard contract to 1.3780. Our profit is 60 pips (= 1.3780 to 1.3720). These are $ 600 (= 60 x $ 10). Note: If we had done the same trade with a mini contract would be, the profit was $ 60 (= 60 x $ 1). With a micro contract at $ 6 (= 60 x USD 0.1).

Example: short sale transaction Forex EUR / GBP

We believe that the EUR will fall against the GBP. So we expect a weaker hand, the EUR and GBP on the other hand is stronger. This means that we expect to receive less for the same EUR GBP amount. To take advantage of this, we now have the currency pair EUR / GBP sell short, to then buy back later at a hopefully lower price.
You can learn more at the forexfactory.com forum.

We sell a standard contract to 0.8610 in order to open up our position. Our theory has come true. To close the short sale, we buy a standard contract to 0.8557. Our profit is 53 pips (= 0.8610 to 0.8557). These are £ 530 (= 53 GBP x 10). Note: If we had done the same trade with a mini-treaty would be, the profit on GBP 53 (= 53 x £ 1). With a micro contract with GBP 5.3 (= 53 GBP x 0.1).