Example of a LONG position
The EUR / USD rate is 1.4211 BID - ASK 1.4213.
This means that a trader can buy at 1.4213 and 1.4211 can sell to. The spread or difference between the BID and ASK is 0.0002 or 2 pips.
For 1 EUR gets now a 1.4211 USD. The investor believes in a further weakening of the USD. According to this investor gets so later for the same EUR USD more. The parity, currently 1.4211, would therefore increase the investor said.
The investor takes a position. He buys 1 lot of EUR 100,000.
What will actually happen?
He buys 100,000 EUR and sells 100,000 x 1.4213 = 142.130 USD. On his account, he therefore a position of EUR 100,000 and a debt of 142.213 USD. To the ratio 1.4213 eliminate these two positions are on.
How much margin is needed?
For this position a value of 100,000 EUR to take is 1% or 1,000 EUR account required.
The price rises ...
The investor has the right to the end. The rate increases from 1.4213 to 1.4291. The investor decides to take his profit and to close the position.
He now sells the position. The sale price is the BID: 1.4291.
He now sells at 100.000 EUR 100,000 x 1.4291 = 142.910 USD. 100.000 EUR goes to his account and there is 142.910 USD.
The investor had to take:
+ 100,000 EUR & - 142.130 USD.
The result is thus:
+ 100,000 EUR - 100.000 EUR 0 EUR =
-142.130 USD + 142 910 = 780 USD
The investor thus realized a profit of 780 USD with a bet of 1,000 USD.
The value of the pip
A pip is the smallest possible fluctuation of parity. In the case of the EUR / USD is 1/10.000. On a bet of 100,000 is this so 10 USD. The value of a pip is always in the 2nd currency parity.
In the example above parity rose by 78 pips. The position was 100 000 in size. The profit is 780 USD.
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Forex is simple follow the trend and you will rich.
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