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Forex Trading Education: How to calculate the profits
Let’s get straight to the point: You’re dabbling in the forex currency trading. It can be the online forex trading or the open forex trading. Whatsoever it may be, you’ve till now pegged your capital on the dollar.
If you believe that the Euro will strengthen against the dollar you’ll surely want to buy Euro now and sell it back later at a higher price.
The bid for Euro (EURUSD) is quoted, for instance, at 0.9250, but the ‘asking’ rate is 0.9999. The equation is simple: You sell EURUSD at 0.9250 USD but you buy EURUSD at 0.9999 USD.
In simple statements, instead of selling Euro @ 0.9250 USD for every Euro you should go for buying 100,000 EURUSD (Euro 100,000) by paying the quotation price of 0.9999 USD for every Euro. You will be the gainer! It means your lucky stars are in your favor (technically the technical and economical as well as political winds (trends) are flowing in the same direction.
But what if the forex currency trading market trends or indicators turn against your lucky stars (compared to the earlier condition). In other words, the Euro is quoted at 0.9550 while the asking rate is $1. In such a situation you must sell a certain percentage of your EURUSD to pocket the profit.
You can calculate the profit by subtracting the size of trade (ST) x buy price (BP) from the Sell price (SP).
This can be shown in the following equation: SP-BP x ST.
Therefore, your profit is as follows: $1– 0.9550 x 100,000 = $ 140
The loss or profit is expressed in the secondary currency.
Let’s now check out certain significant terminologies connected with the forex currency trading market.
Here are those important terms: Bear, Bear market, Bull, cross, Cross rate
• Bear : This epithet applies to anyone who thinks that prices are moving down.
• Bear market : It refers to the market that witnesses a sustained or continued fall in prices. Such a market generally takes time to recover.
• Bull : A bull is any person who harbors optimistic sentiment on the market.
• A bull market : Such a market witnesses sustained and enthusiastic and buying.
• cross : In the forex trading market, one trades in two currencies. In simple terms, the investor buys a currency with another. Both the currencies are called the cross: for instance, EURUSD .
• Cross rate :The rate of exchange calculated by taking two other exchange rates.
Check out the article ‘Forex Trading Education: Learn the strategic terms’ for the glossary.
