Deciding and Determining a Forex Deal
Deciding to perform a forex deal
You have an intention to trade Forex, and you have your own reasoning for doing so - e.g. you feel that the USD will increase compared with the EUR. The EUR/USD exchange rate is, at the time, around 1.2000 (the common presentation of the Euro-US$ pair is EUR/USD, meaning 1.2000 US dollars for 1 Euro). Your feeling can be based on your experience, or on technical analysis, or fundamental analysis, etc. For whatever reason, you believe that the USD will rise to around 1.1850 (EUR will be down, which means USD will go up). You want to profit if your forecast is correct, and so choose to make a trade.
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Determining the forex deal
Below are a screen-shot of a Day-Trading deal in the making and an explanation of each step required to put the trade into effect:
Buy & Sell Currency Rate - Day Trading with Easy-Forex Australia
Select the currencies in the Forex pair. There is no connection between your 'base working currency' (or account base currency, the currency in which you handle your Forex account and make deposits and withdrawals) and the currencies in the pair you select. In this example you selected 'BUY USD' because you feel it is low in terms of Euro, and it will increase in the near future. Once it increases to the level you anticipate, you will close the deal, and get more EUR for the USD you previously 'bought' - hence, you make profit.
Select the amount
Since Forex trading is 'non-delivery' trading (i.e. no physical currencies are transacted), the Forex deal (contract) has a 'volume', or 'size', meaning the amount of the currencies in this contract. You determine the volume of the contract, but you do not have to purchase the whole amount. In general, you work in the most common leverage (see below), 1:100: therefore a deal of 10,000 Euro will require much less money to facilitate it.
Select the amount to risk
This is your investment. This is the amount you risk, meaning the MAXIMUM amount you can lose. On a 1:100 leverage, EUR 10,000 against USD thus requires only USD 100 (in fact, the actual leverage you are offered in this case is 1:120, since you 'buy' EUR10,000 with USD 12,000 guaranteed using only USD 100 of your own money).
Stop-Loss forex rate
This is the currency exchange rate at which your deal would automatically close in the event the market ran counter to your forecast. In this event, you would lose your USD 100 investment. You can define another Stop-Loss rate, however, the 'amount to risk' will change accordingly. There is a direct relationship between the Stop-Loss rate and the 'Margin' (i.e the amount risked) required for the deal.
Freeze currency rate
This feature is unique to the Easy-Forex Trading Platform. You see the rate for the deal and you are almost ready to accept it, but before you do, you need a few seconds to think. With the freeze rate feature you are allowed a few seconds more to either decline or accept the deal.
Accept forex deal
When you're ready, click 'Accept' and your deal is activated. You have enough money in your Forex account to make the deal, so it's in play. You are holding now an 'Open Position' in Forex.
Please note, 'Renewal until': The Day-Trading deal resembles a 'SPOT' transaction (but is not identical). The rates in the deal are the updated current rates ('spot'), and the deal may be closed anytime during the trading day. However, the trader can extend the deal to the following day (paying a small renewal fee). Most platforms offer an automatic renewal of the deal, for a few days period. The trader may close the position at any time. If the trader closes the deal before the indicated closing time (usually it is 22:00 GMT), no renewal fee will be charged.