In contrast to exchange transactions with real supply or real currency the participants of FOREX use trading with a margin deposit; i.e. marginal or leverage trading. In marginal trading, each transaction has two obligatory stages (they can be divided by period of time, which can be as long as you like): buying (selling) of currency at one price, and then selling (buying) it at another (or at the same) price.

The first transaction is called opening the position, the second one, closing the position. Opening a position, a trader furnishes a deposit sum from US$250 to US$1,000, granted for the transaction. So, in order to buy or sell US$100,000 for British Pounds (Cable, you will not need the whole sum, but only from 500 to 2000 US dollars depending on your policy of controlling risks. When the position is closed, the deposit sum returns, and calculation of profits or losses is done. All the profit or losses caused by the change of currency rates is credited on your account.

Let’s take a concrete example of getting a profit from the changing the rate of the Euro, from 1.3000 to 1.3200. If you have anticipated this change by using technical or fundamental analysis, you can buy the Euro cheaper for dollars, and then sell it back at a higher price. For example, if you choose leverage 1:100, then US$1,000 of margin will be transfer from you CASH account into your margin account and you purchase/BUY 1 lot of the EUR/USD (EURO Vs. USD meaning you are buying EURO and Selling US Dollar) at price of 1.3000.

When the rate changes and you close the position and sell the EUR/USD, but at the rate of 1.3200, you receive US$2,000 + your margin of US$1,000 for a profit of US$2,000 [1.3200-1.3000 = 200 pips (each pip = $10) 200 pips * $10*1 Lot = US$2,000]. The same transaction with leverage 200:1 would give you a profit of US$4,000 if you had placed a 2 lot (remember with 200:1 the margin is only US$500 per $100,000 position) [1.3200-1.3000 = 200 pips (each pip = $10) 200 pips * $10 *2 lots = US$4,000.

We’d like to remind you that the higher the credit leverage, the higher is your profit if the fluctuation of the currency rate was anticipated correctly. However, if your anticipation was wrong, your losses will be larger also.
Past performance is not indicative of future results.
One cannot feel confident in the FOREX market without a thorough knowledge of the terms used there.

Foreign exchange quotes are a relation between currencies.

  • USDCHF – the cost of $1 in Swiss Francs.
  • USDJPY – the cost of $1 in Japanese yens.
  • EURUSD – the cost of Euro 1 in US dollars.
  • GBPUSD – the cost of 1 GBP in US dollars.

That is, quotes are expressed in the units of the second currency for a unit of the first one.

For example, quote USDJPY 108,91 shows that $1 costs 108.91 Japanese yens. Quote EURUSD 1.3000 shows that 1 Euro costs 0.7692 US dollars.