“Buy low and sell high” is the universal principle of profit, it is easy to understand. To give a simple example, vendors used to sell fruit from the wholesaler to the price of 1 U.S. dollars to buy a pound of apples, then the price of 2 dollars a pound sold to customers, and thus a profit one U.S. dollars per pound. Investments in real estate, but also want to buy low-priced real estate, house prices rise again when that time forth, and make a profit. Investing in stocks is similar. Hope in a very low stock price to buy, with the continuous improvement of company performance, the stock value rising, and so on, after the stock reaches a certain price, to sell the stock for a profit.
Principles of foreign exchange investment profit margin were similar, there are differences.
First of all, fruit vendors, investors, buying and selling real estate or stock is a single object. Foreign exchange transactions are slightly different. Foreign exchange transactions or foreign exchange (Foreign Exchange, or FOREX) always involves two currencies, according to a certain degree of exchange rate of a currency conversion to another currency. Foreign exchange is always displayed in the form of currency pairs, such as the USD / CAD, USD / JPY, AUD / USD. The euro / dollar, for example, the currency’s current exchange rate of 1.3626, which means one euros can be exchanged for 1.3626 U.S. dollars. In a currency, a currency appreciation, it corresponds to another one on the depreciation of the currency. In the euro / dollar, if the euro’s appreciation, which means depreciation of the dollar.
Foreign exchange investment, when, to some extent also follow the principle of buy low and sell high.
And then the euro / dollar as an example. If investors, according to market analysis, that the various factors affecting the euro push the euro higher, and he is not bullish about the dollar, so he bought 100,000 euros, while meant to sell U.S. dollars. At present the euro against the U.S. dollar exchange rate is 1.3626. A month later, the euro against the U.S. dollar exchange rate of 1.3800, which is € 1 convertible 1.3800 U.S. dollars, indicating the euro higher than the month before, while the dollar dropped. So investors sell euros (buying dollars) lateral transfer positions to achieve a profit, a total profit of 174 points (1.3800-1.3626), or is $ 1740. Conversely, if one month after the euro against the dollar becomes 1.3400, he would take a loss of 226 points (1.3626-1.3400), or $ 2260.
But the foreign exchange market can also buy low and sell high profit. Investors can be used for short – when a currency will slide on fears of being judged for the empty (sold) This money can also be profitable. This is different from other investment activities. If the bearish real estate market, investors will wait to not buy real estate, worried that housing prices continued to fall, resulting in a loss. If a currency put, means the opportunity for investors.
Still EUR / USD as an example. If investors, according to market analysis, that the various factors that affect the euro will result in euro, the dollar bullish trend, so he sold 100,000 euros, also means buying U.S. dollars. At present the euro against the U.S. dollar exchange rate is 1.3626. A month later, the euro against the U.S. dollar exchange rate of 1.3500, which is € 1 convertible 1.3500 U.S. dollars, indicating the euro fell over a month ago, while the dollar rose. Therefore, investors bought euros (sell dollars) lateral transfer positions to achieve a profit, a total profit of 126 points (1.3626-1.3500), or $ 1260. Conversely, if one month after the euro against the dollar becomes 1.3700, he would take a loss of 74 points (1.3700-1.3626), or $ 740.
Since foreign exchange is about two kinds of currency, then the foreign exchange margin beginner could not help but ask: “When I open an account deposits in U.S. dollars, to buy or sell euros or other non-US currency, the need for constant currency exchange it? “The answer is not necessary. Each can be regarded as a currency for transactions in shares or a property. If you call a currency, you buy a currency (at the same time sell another currency), and so it is health value, and then sold and profits. Do not forget, if put in some money, but also for the empty (sell) the currency (while buying another currency), and so it is devalued.
Then each transaction really need to make 100,000 euros or the equivalent in dollars? The answer is no. Lies in the unique position of foreign exchange margin, investors can use leverage ratio, each for 100,000 euros or the equivalent in U.S. dollars of transactions, only offer a 1% margin, your deposit accounts, mainly used to pay the extra 1% of the margin and withstand market volatility.
