Basics of Currency Trading

Welcome to the World of Currencies,[object Object]

Currencies,[object Object],Appreciation and Depreciation,[object Object]

Changes in the rate are expressed as appreciation or depreciation of one currency in terms of the other currency It is also referred to as strengthening or weakening of once currency vis-a-vis the other,[object Object]

Let’s look at an example:,[object Object],1 USD = INR 40,[object Object],Something costing 100$ will cost Rs.4000/-,[object Object],1 USD = INR 45,[object Object],Something costing 100$ will now cost Rs.4500/-,[object Object],A Bigger value of the exchange rate means that our purchasing power is lower; it is a depreciation of the Rupee and appreciation of the dollar,[object Object]

Let’s look at another example:,[object Object],1 USD = INR 45,[object Object],Something costing 100$ will cost Rs.4500/-,[object Object],1 USD = INR 40,[object Object],Something costing 100$ will now cost Rs.4000/-,[object Object],A Lower value of the exchange rate means that our purchasing power is higher; it is an appreciation of the Rupee or you can say the Rupee has strengthened and a depreciation of the Dollar or the Dollar has depreciated,[object Object]

The “bid” is the price at which you can sell the base currency,[object Object],The “offer” is the price at which you can buy the base currency,[object Object],USD/INR,[object Object],49.2225/49.2275,[object Object],OFFER / ASK,[object Object],BID,[object Object]

Bids and Offers are always for the Base currency,[object Object],Traders always think in terms of how much it costs to buy or sell the base currency,[object Object],On the trading screen, you’ll see two prices for each currency pair. The price on the left-hand side is called the bid and the price on the right-hand side is called the offer (some call this the ask),[object Object]

Let’s look at an example:,[object Object],The quote for the Dollar Rupee might be as follows:,[object Object],USD/INR,[object Object],49.2225/75,[object Object],Here the bid price is 49.2225 per Dollar and ,[object Object],the offer price is 49.2275 per Dollar,[object Object],Usually a market maker will simply give the quote as 25/75,[object Object]

The price quotation of each bid and offer you see will have two components:,[object Object],Let’s look at an example:,[object Object],The quote for the Dollar Rupee might be as follows:,[object Object],USD/INR,[object Object],49.2225/75,[object Object],In the above example ,[object Object],- the Big figure is 49.22 and the dealing price is 25/75,[object Object]

USD/INR,[object Object],49.2225/49.2275,[object Object],0.0050,[object Object],Spread,[object Object],Spread is the difference between the bid and the ask,[object Object]

Trading Screen,[object Object]

Calculating profit and loss using pips,[object Object],The last decimal place is called the pip. For most currencies, bids and offers are presented to the fourth decimal place that is 1/10000th of the terms currency unit also called as pip,[object Object],Profit-and-loss calculations are pretty straightforward in terms of math — they’re all based on position size and the number of pips you make or lose. A pip is the smallest increment of price fluctuation in currency prices. Pips can also be referred to as points; we use the two terms interchangeably,[object Object]

Let’s look at some currency quotes to understand pip better,[object Object],USD/CHF = 1.2267,[object Object],USD/EUR = 1.3225,[object Object],In the USD/CHF if the price moves from 1.2267 to 1.2287, it has gone up by 20 pips. If it goes from 1.2267 to 1.2253, it has gone down by 14 points,[object Object]

Basics of Currency Trading

Basics of Currency Trading

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Basics of Currency Trading