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Chapter 5, Part I. Where does the money come from in FOREX?

Discussion in 'Complete Trading Education- Forex Military School' started by Administrator, Apr 8, 2011.

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  1. Administrator

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    Part I. Where does the money come from in FOREX? [​IMG]
    Commander in Pips: Ok, son, now we are shifting to the trading process directly.

    Pipruit: Finally, Sir. I really can’t hold myself back anymore and want to make my first trade now.​

    [​IMG]

    Commander in Pips: Well, there is still a long way to that moment, son. I’m not saying that “we start to make trades”. I’ve just said that we now turn to trading process education.

    Pipruit: Oh, again this long time of expectation an explanation. But I hope that the trading process discussion is more interesting than the previous topics all together…​

    Commander in Pips: You’re absolutely right with that. Besides, all things that we are starting to discuss have absolutely practical importance.

    Pipruit: Cool, let’s getting started with it!​

    Commander in Pips: Very well.

    As we’ve already discussed, FOREX is a market where you exchange one currency for another. In other words, you buy one currency for another one (i.e. selling the other currency). In this sense, the trading process is absolutely the same as on the other markets – stocks, bonds, real estate. When you buy something, you pay money and expect that this asset will increase in price. So as on FOREX – buying a particular currency, you expect that it will increase in value compared to other currency that you’ve sold, i.e. paid for the currency that you’ve bought. We’ve already touched on this topic lightly in Part 1 Chapter 2 and 3. Now let’s see how a common transaction looks on FOREX:

    Typical transaction:

    1. Assume that current GBP/USD rate is 1.5500. And you intends to Buy 10 000 GBP. The question is: how much USD you have to pay for 10 000 GBP?


    Pipruit: Well, it’s an easy riddle: 10 000*1.5500 = 15 500 USD.

    Commander in Pips: Absolutely right, by the way – 10 000 units of currency – is that a standard lot or not?

    Pipruit: As I remember from previous lessons, a standard lot is 100 000 units, so 10 000 is 0.1 lot. That’s sometimes called a mini-lot, right?​

    Commander in Pips: Correct.

    As we’ve already discussed, FOREX is a market where you exchange one currency for another. In other words, you buy one currency for another one (i.e. selling the other currency). In this sense, the trading process is absolutely the same as on the other markets – stocks, bonds, real estate. When you buy something, you pay money and expect that this asset will increase in price. So as on FOREX – buying a particular currency, you expect that it will increase in value compared to other currency that you’ve sold, i.e. paid for the currency that you’ve bought. We’ve already touched on this topic lightly in Part 1 Chapter 2 and 3. Now let’s see how a common transaction looks on FOREX:

    Typical transaction:

    1. Assume that current GBP/USD rate is 1.5500. And you intends to Buy 10 000 GBP. The question is: how much USD you have to pay for 10 000 GBP?


    Pipruit: Well, it’s an easy riddle: 10 000*1.5500 = 15 500 USD.

    Commander in Pips: Absolutely right, by the way – 10 000 units of currency – is that a standard lot or not?

    Pipruit: As I remember from previous lessons, a standard lot is 100 000 units, so 10 000 is 0.1 lot. That’s sometimes called a mini-lot, right?​

    Commander in Pips: Correct.
     
    #1 Administrator, Apr 8, 2011
    Lasted edited by : Feb 7, 2016
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