How to Earn at Forex Currency Market: Theory and Practice: Technique of the deals’ execution

This lection has a summary character. Let’s try to apply the knowledge received during previous lessons. We will execute deals and observe what useful information a terminal gives to us, how this information is changing during the price change and etc.

We will try to fix already received knowledge and of course, learn something new. I hope that you had enough time to learn the manual of the trading terminal, opened demo-account and it will be not difficult for you to carry out all mentioned below tasks.

As we know trading at Forex lies in deals execution, which may be short or long. For opening a position you need to request a quote from a Broker.

In the field “profit” appears a sum – 9. Obviously, it means that we observe the negative result because having executed a deal at the bid price 1.4471; offset deal may be made at the asking price which is 1.4480 at the given moment.

The sum will be changing together with the market price and counted on the basis of the current ask price. Due to the fact that this deal is the only one and no deals were executed earlier in the field “profit” we see -9 and that is why in the field “total profit/loss” the sum -9 is duplicated, a bit later we will show how to count this parameter if there is a result of current deals.

In the field “funds” there are also some changes, the sum 5000 decreases and now equals 4991. Possible losses according to the floating result “non-implemented profit/loss” and commission were taken into consideration.

5000-9=4991

In the field “margin” 144.71 reflects, it shows how much money a trader needs in order to open a position with volume 1 lot (as it was said earlier the price of 1 lot in the company InstaForex equals 10000).

We have opened position EUR/USD and the main currency is EUR, consequently, the sum of 1 lot equals 10000 EUR. If we have a leverage of 1:100 we need a margin in 100 times less than 10000 EUR – 100 EUR.

We also have to take into consideration account currency, in our case, we have opened an account in USD and consequently, we need to transfer 100 EUR to USD in order to calculate margin. So, if bid=1.4471, then 100 EUR= 100* 1.4471=144.71 USD

Allowing for a margin “free margin” is counted and now for opening additional positions a trader has 4846,29 USD. This sum is counted in the following way: we increase or decrease the balance in the sum of total profit, reduced in the sum of margin.

5000 - 9 – 144,71 = 4846,29

It is not difficult to count how many positions with the volume of 10000 units may be added to already opened position EUR/USD:

4846.29/144,71≈33

So, a trader may open 33 positions more. Sell 330 000 EURO or execute deals (sell, buy) with other currency pair with volume, not more than 330000 units.

Now, let us close opened position. We can do it with 2 methods:

- again ask for a quote and click “Buy” in the appeared window. Please be attentive when you request a quote. You should control that your request a quote for a pair EUR/USD and the sum which an offset deal will be executed with, the volume of this sum should be equal to the volume of the sum which a position was opened at;

- Close position by a direct order “Close”, just Click the button “Close”. In this case, a trading terminal determines itself what operation sell or buy should be executed and the amount of the offset deal;

Short position which we have opened was closed at the moment when EURO was quoted at 1.4485-1.4488, and an offset deal was made at the asking price of 1.4488.

Let’s see what changes in the trading terminal appeared:

In the balance table the following changes took place:

In the field profit/loss appeared 0, recalculation was made as a result of executed operation.

+100000 eur

-100000 eur

+14471 usd

-14488 usd

-17 USD

In the field “balance” the sum 4983 is reflected, it appeared as a result of the received profit and deposit balance adding up. Deposit balance minus loss and swap (ша it was reduced or added). 5000-17=4983. We will touch on the swap charge in the next lesson.

The field “Order” does not have any remarks, which means that there are no opened positions. In the table “Order” there is one more field.

In the section Account history, you may find all information about executed deals: order number, time of operation opening, time of operation closing, deal type, opening price, closing price, swap and total profit.

We need to execute one more deal. Place orders which limit your profit and loss. Leave position open and observe changes that happen in the informational field of InstaTrader terminal.

Due to the growth of EUR/USD, the long position was opened at 1.4497 (ask), so we bought a basic asset.

As you can see in the situation in the above picture is almost the same as with deal 1. But sums in the fields balance and free margin are corrected allowing for-profit received as a result of executed operation. We see buy order; depending on a quote for pair EUR/USD Margin sum is calculated 144,97 (because ask=1.4497).

In order to limit our losses and fix profit, we establish orders according to which a Broker must close our deal when a price reaches levels set up in the orders. Open the context menu with the right mouse button and choose the line Modify or Delete Order.

Let us examine the case of stop loss and take profit establishment when a quote reaches the following values Bid=1.4493 and Ask=1.4496.

It is seen that price levels 1.4498 and 1.4499 were established, when a price BID reaches levels (the close long position we may only at a BID price) 1.4489 and 1.4499 a Broker must execute reversing trade, sell the bought asset.

This action leads to the changes only in the table notes “Position”.

In the columns S/L and T/P price levels appear which we indicated while order placing, this means that orders are accepted, placed and a Broker carries out an order in case a price reaches this levels. We limited our risks by stop-loss and now if Euro falls our losses constitute not more than 5 US Dollars. It is obvious why a trader places S/L, but what about profit fixing?

As it is known, price does not move only up or down, reaching a certain level a market starts moving in the opposite direction. That is why it is very important to determine not only levels of the possible losses but also levels at which a price may reverse.

In order not to turn a profitable position into an unprofitable you should fix the profit in time. It will be done with the help of take-profit order when a price reaches the necessary level.

These orders will be executed without the direct participation of a trader by a Broker itself according to the received orders and that is why it is not necessary for a trader to stay in front of the computer and monitor market movement.

Moreover, placed limit orders (take-profit, stop-loss and any pending order) are executed without slippage. Slippage – is a difference between the price at which an order should be executed and a price of actual execution.

For example, a trader places an order stop-loss for closing a long position and establishes a price of 1.4489. In case this order will be executed with slippage which is used by many brokerages companies it may be executed on 1-3 pips worse, i.e. at price 1.4488, 1.4487 or 1.4486 and this decreases possible losses significantly.

According to the rules accepted in the company, InstaForex orders are executed exactly at a price established by a client even if there is a strong movement at the market.

Order limited losses (stop-loss) is placed lower than the opening price if the position is long and over the opening price if the position is shot because in these price areas the risk of losses are located.

Order fixed profit (take-profit) is placed over opening price if the position is long and below the opening price, if the position is short.

Let us leave the position opened, without making a reverse deal on the day of its opening and have a look at the changes.

Euro price falls and quotes for EUR/USD is 1.4486(bid)-1.4489(ask), which is lower than the level of the placed stop-loss order. This means that opened long position must have been closed and the absence of any notes in the table “positions” proves it. Open a window account history and check the results of the deals executed at the given account.

In order to receive necessary information in the window “History” set period interested for us: 01.09.2009 – 11.09.2009 and Click “OK”.

Look through the appeared data. In the first line a price which the deal was opened at is reflected.

In the line “Profit” we see -13. This sum is a result of the collective loss of 13 US Dollars (after the position was closed at a price 1.4489) and commission for prolongation of the position Swap (if it was).

Pay attention to the line “profit/loss”. -13 is profit (there is “-“ sign). As it was mentioned above repeated purchase of the asset (EUR) was made at a price of 1.3579, this means that calculations for order stop-loss should be made according to this price.

+10000 eur

-10000 eur

-14497 usd

+14489 usd

8 USD

This figure is fixed in the line “Profit/Loss” and taken into consideration while calculations of the sum, it is reflected in the field “Current balance”. Total loss is 30; calculations of the balance: 5000-30=4970.

Execution of the deals via trading terminal MetaTrader4 is possible not only by means of the market orders as it was executed earlier in our lecture but also with the help of limited orders. Limit order is an order to the broker for buy or sells deal execution if a level indicated in this order is reached.

In order to place a limit order, it is necessary to open the window “Order”. Mark that this is a limit order, the price a deal should be executed at, deal type: buy or sell, and time of this order validity.

In our case we opened the BuyLimit deal:

With the help of the limit orders, we may open, close positions and use them like orders stop-loss and take-profit, carry out position reversal. Position reversal with the help of the limit orders is executed by the settlement of the bigger volume than the volume of the opened deal.

For example, a trader had opened a long position for pair GBP/USD in the amount of 10 000 at a price of 1.8000 and after some time decided to reverse a position due to the fact that the price reached the target level and great possibility of the movement in the reversed direction appeared. He placed a sell order and increased the sum of the opened position in 2 times. It constituted 20 000, the deal was executed at a price of 1.8050.

Balance scheme:

+10000 gbp

-20000 gbp

-18000 usd

36100 usd

-10000 gbp

+18100 usd

As it is seen trader’s the position remains open, but reversal took place, this position was closed and the short one was opened.

Except for the above-mentioned orders the opportunity the usage “Trailing stop” orders are foreseen in the terminal. This topic will be your home task, it is well described in the manual to the terminal.

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