How the Forex Market Actually Works
Most people trading forex do not understand how it works. Trading is usually conducted at non-professional terminals and is perceived by the trader as a casino or scam.
Consider the main biases:
There is a “Current price” and already further, the Dealing Centers break it into ask and bid
Forex trading in lots
The prices that we see are indicative and serve only to inform. And trading takes place "at the next price."
The calculation of profit and collateral is complicated and occurs through special formulas
There is no real supply of currencies on Forex
These prejudices do not make the market as a whole understandable and lead to losses.
Traders perceive the market through the sites and terminals in which they operate. Most of these terminals are too simplistic. Functionality is stripped down. And in my opinion, this is the main cause of forex losses.
99% of customers even in some banks trade in the Metatrader 4 system. This screenshot gives an example of a screen that most of you are well aware of. Consider the errors in order.
There is a “Current price”
This may surprise many, but such a misconception arises very often. In Metatrader 4 you can see the history only at bid prices ask prices are not shown. In other words, it is impossible to understand at what prices one could buy (open BUY deals). If you look at transactions on historical data, they often hang in the air
Also, there is no tick chart. You can see only a minute.
In banking terminals (Ducascopy Trader, SaxoTrader or MobiusTrader there are also many others) you see both ask prices and bid prices.
Displaying only the bid price and the absence of a tick chart allows brokers to cheat to “draw” spikes that knock down the stops of transactions on sells this is not possible in a real brokerage terminal.
For this terminal, a tick schedule is required only by it you can understand how the price is formed.
The prices that we see are indicative and serve only to inform. And trading takes place "at the next price"
Perhaps the most common belief is that DCs on MT4 independently offer you their own quotes, which they can change and show anything. We are not talking about obvious cases of fraud. Although they meet,
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yet they are rare enough. We say that the ideology “Our DC - Our quotes” itself leads to the fact that quotes are not perceived as something common for which you can trade.
Nevertheless, the quotes that you see in the terminal should be “real” on the exchange these are applications of individual market participants. Of course, in the forex market, ordinary traders practically do not affect the price but, for example, in the cryptocurrency markets, even the applications of individual traders are visible.
We can put a deal Let’s say
And to see that our application is visible in a glass of prices and even shifted the price.
It can be seen that this is our application, and it can be seen that it is visible in a glass.
Thus, prices are not indicative, but real orders and in the real world you should trade only on them. Also in a real banking terminal.
Dealing centers should not interfere in the process of creating quotes they should not have such an opportunity!
There are lots
A very strange conviction, because in the real world nowhere except in several terminals mainly in Metatrader 4, lots are not found. Lots were introduced, possibly to simplify internal calculations in the program programmers simply could not cope with the task of issuing real volumes.
Nevertheless, lots greatly harm the understanding of the market. Few people understand how to calculate "what kind of security will be on the account when buying 1 lot of EURCHF. And GBPUSD? ”“ And why is the guarantee on EURUSD the same as on EURCHF? ”Etc. The calculation of profit is also incomprehensible what profit will I get if I buy 2 lots of EURUSD and the price rises from 1.12115 to 1.12140?
Also - as you can see - not understanding what exactly we are buying is hard to earn. It's one thing if you know that you have 200,000 euros. You can evaluate how much this is and what to do next. Another if you have a “bet” on 2 lots of EURUSD then you involuntarily start to treat the transaction as a bet in a casino.
In this exchange terminal
You see the real volumes these are the volumes that you buy. You can feel your purchase, which leads to an adequate perception of the situation so you are less likely to lose money and earn much more.
Also, you can easily calculate the deposit, bought 1000 euros? So on your dollar account the deposit will be 1000 * Euro = $ 1221. Profit on the purchase of 100,000 euros and an increase in the rate from 1.22110 to 1.22160? Easily. The rate has grown by 0.0005, which means I will sell my 100,000 euros for 100,000 * 0.0005 = $ 50 more. Everything became simple and clear (which also leads to profit).
There is no real supply of currencies on Forex
The most common nonsense, while served as an undeniable truth. As we have already said, most do not perceive trading on the market as buying one currency for another, for them this is a bet. That is, “buy one lot of EURUSD”, if the rate grows by 100 pips, the rate doubles. Therefore, 95% of traders lose. If you want to earn money, you need to know where you work!
Forex is primarily a currency exchange market. And your terminal should be able to change money. Your order on the Forex market is either the exchange itself or the preparation for the exchange of money. Yes, most often you refuse to exchange (place an order opposite to the previous one), but this is still a “hack”, an undocumented opportunity.
What money exchange looks like in a real terminal.
Suppose you have an order
You can select it
As you can see, the “Fix” button appears.
After that, you can click this button. The profit on the transaction becomes equal to zero (the opening price is equal to the closing price), and you receive two orders, debiting from your current account and crediting to the account in the currency that you buy.
The same with cryptocurrencies
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