Until now, when considering quotations, to facilitate understanding of the matter, we deliberately used only the current (spot) exchange rates on Forex. In fact, any quotation on Forex has two courses (two prices) - the rate of purchase (bid) and selling rate (ask). These courses are usually denoted by a slash "/", where lines to indicate the rate of purchase, and after features - selling rate, for example, USD / JPY 104.75 / 104.85.
Under the purchase price means the price at which a party, putting quotation, agrees to buy your base currency. Under the rate of sale refers to the price at which a party, putting quotation, agrees to sell you the base currency. That is the concept of buying and selling in relation to you, as it were "flipped". Bought and sold in this formulation do not you and the party offering you a quote. In other words, if you are going to buy the base currency, you need to look at the selling price (ask).If you are going to sell the base currency, then you need to look at the purchase price (bid).
For example, if you are going to buy 100 US dollars for Japanese yens at quotation USD / JPY 104.75 / 104.85, you will need 100 x 104.85 = 10,485 yen. If you are going to buy Japanese Yen by selling $ 100, you get a 100 x 104.75 = 10,475 yen.
Depending on the trading platform provided by the Internet broker for its clients, a graphical representation of quotes will vary. Example of graphical display of quotes shown in the figure.
As senior figures quotes (big figure) change slowly over time, the selling rate (ask) the official quotations Forex they often do not appear. For example, considered above quotation of the US dollar to the Japanese Yen may look like USD / JPY 104.75 / 85. The term big figure at the dealership jargon means the base number of 100 points, so the selling rate (ask) quotes, as a rule, only the last 2 digits.
The difference between the rate of sale and purchase rate (right and left side of the quotation) is called spread (spread). The spread is the basis of the profit for the party to quote.
Consider the exchange office with the typical Forex quotation of the US dollar against the Japanese Yen USD / JPY 104.75 / 85 with a spread of 10 points. Do you sell US $ 100 and get a 100 x 104.75 = 10,475 yen. If someone else is now to come and buy in exchange office the 100 US dollars, it will be forced to pay 100 x 104.85 = 10,485 yen. Thus, the currency exchange will earn 10,485 - 10,475 = 10 Japanese yen. As you can see, exchange earns on opposite transactions with currency, ie when someone buys and someone sells. This principle is the basis of receipt of brokerage houses arrived in the Forex market.
Profit in 10 Japanese yen (about 10 cents, based on the US dollar) is negligible compared to the amount of the transaction at $ 100. That is why, exchangers used a much larger spread than the quotes on forex, where the minimum transaction size is much larger and is about US $ 100 000.More real to the exchange point quotation would be USD / JPY 102.00 / 108.00 with a spread of 600 points. Then profit from the transaction amounted to US $ 100 to 600 Japanese yen (or 5.56 US dollar terms for the same quotation).
We will learn how to determine the profit from the transaction and converted it into the currency of interest to us in the following sections of the site. At this point it is only important to understand that any quotation Forex presents two courses (both buying and selling), and the difference between these rates is called the spread and is expressed in points.
Thus, the spread - the source of income for the parties, to quote. For this reason, the retail brokerage houses representing private investors the opportunity to work on the Forex through the Internet usually do not take commissions on the transaction - they earn on spreads.
In subsequent chapters, the site where we will learn to open and close positions on the Forex, is explained in detail why a large spread is not profitable for the private investor. In the meantime, you should understand that when choosing a broker online in the first place should pay attention to the value of the spread, which offers on - the smaller the spread, the better!
Where are the courses buying and selling? Who sets them? Quotations of currencies are determined solely by supply and demand of currencies on the international currency market. The main influence on currency exchange rates have a major active participants of the Forex market (on the classification of forex market participants said earlier in the relevant chapter). Picking up mainstream rate changes, large passive participants, and millions of small parties also have an impact on the further course change. Thus, if the majority of participants trying to sell separately taken currency, the price for it drops. If, however, the main trend is to buy the currency, the price for it is growing. The task of the trader, so time to recognize this trend. Talking about it in detail will come later in the section School Forex Portal forexanewway.blogspot.in
Different members of the international foreign exchange market at different times of the value of the spread in the quotation is not the same. For large parties Forex transact in millions of US dollars, the value of the spread is minimal and is usually only a few points, because even a small spread in such deals can bring considerable profit. For small parties Forex make transactions for smaller amounts, the spread size larger. So, in exchange offices the size of the spread can reach hundreds of items.
In an unstable, rapidly changing the course, the size of the spread may increase. Thus, in the moments of excitement the purchase or sale of foreign currency caused by the release of important economic indicators (elements of fundamental analysis are described in detail in the section School Forex) Online brokers often increase the size of the spread, and it is also necessary to consider when choosing Internet broker - is preferable to a broker with a fixed constant spread.
The size of the spread may depend on the liquidity of the single currency. If the currency is not traded actively on the Forex, spread on relevant quotations may be longer. This is especially true for the interbank foreign exchange when banks exchange "exotic" illiquid currencies of underdeveloped countries. Private investors are also mostly work on Forex quotes highly rates.
For major participants in the international currency market value of the spread may depend on the amount of the transaction. If the amount is different from the sum of the average market single currency, the spread may be more. For large transactions expose the bank to significant risks, while for smaller amounts of higher cost of bank for their conduct.
Ultimately, the relationship between the contracting parties of the transaction may affect the size of the spread. If between the parties established a strong business relationship, they can come to an agreement on reducing the size of the spread. Conversely, if the dealer does not want the bank to carry out the operation with the counterparty taken separately, it can deliberately inflate the value of the spread in the quotation, deliberately forcing the company to abandon the operation.
So, the rate of purchase (bid), the selling rate (ask) and the size of the spread (spread) in the quotation - the key concepts when working on the Forex. Private investors need to clearly understand their meaning. After all, when working at Forex decisions must be made quickly, and this problem in understanding the basic concepts should not be!
Private investors should not frighten the fact that Forex transactions usually consist of hundreds of thousands and even millions of dollars. The principle of margin trading, which will be discussed in subsequent chapters, the information portal Many Brokers allows private investors to make transactions in the hundreds of times greater than the funds available to them.
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