(example, using the Easy-ForexT platform)
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.
Below is a screen-shot of a Day-Trading deal in the making and an explanation
of each step required to put the trade into effect:
Select currencies: Select the currencies in the Forex pair. There is no
connection between your "base working currency" (or "account base
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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 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 Rate: This feature is unique to the Easy-ForexT 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: 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.
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.