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Forex newbie questions
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Forex newbie questions

  #1 (permalink)
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Forex newbie questions

A Forex newbie question:
- your broker account is, I suppose, in USD
- you go Long EURJPY 132.75, covered at 133.19, +44 pips
- do you have to manage yourself the currency risk USD vs EUR, or is it made by your broker ?
In this case, if you go Long EURJPY @ 132.75 means buy 1 EUR with 132.75 yens, right ?
So, you need a JPY funded account, or your broker is converting some of your USD in JPY, when the trade is initiated ?
In this case, how is managed the USDJPY risk ?

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Last edited by sam028; November 25th, 2009 at 03:42 PM.
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Alright sam - some forex info

@ 4:00 CST every day they have a rollover where they settle positions. If you are carrying a large open position it can effect you.

What is Rollover in the Currency Market?

premium rate explanation at my broker ...
MB Trading - Stocks Options Futures Forex Online Discount Trading

Day Traders = me

For day traders, who almost never hold any overnight positions, the rollover is not applicable because there are no positions to roll, and therefore no interest is earned or paid.


do you have to manage yourself the currency risk USD vs EUR, or is it made by your broker ?

The broker automatically computes your buying power. It will change throughout the day based on what the currencies are doing.

I used to hold large positions through rollover. I don't do that anymore. A popular thing to do is the carry trade....

Carry Trade

Commissions are the real pain in the tail to me. I average around 18%. Maybe that doesn't sound bad. But this is just to place electronic trades into an interbank market. It's robbery. I went back and looked. Highest commissions I ever paid in a single month were in 3/08. I paid $33,932. Bastards. more info on how this is calculated...
MB Trading - Stocks Options Futures Forex Online Discount Trading

There are 2 types of forex brokers. Ones that charge a commission (ecn) and ones who put it in the spread. Commission is more desirable - lesser of 2 evils. Spread brokers are charging you a random price for a transaction... kinda shady.... ok really shady.

You think the markets are fair?
read about this nice piece of broker software.

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+++++++++++++++
In brief and general, a pip is the smallest price change that a given exchange rate can make. Therefore defining ‘1 pip‘ for each currency pair is dependent on the exchange rate (quoted price) given to the related pair. Let me take GBP/USD, GBP/JPY as an example. What is ‘1 pip’ for those pairs?

GBP/USD are commonly quoted into four decimal points (eg, 1.8397). Then ‘1 pip‘ for GBP/USD in this case is equal to 0.0001 price change (be it higher or lower).

GBP/JPY are commonly quoted into two decimal points (eg, 193.57). Then ‘1 pip’ for GBP/JPY in this case is equal to 0.01 price change (be it higher or lower).

Soooooo
------------------
This is all auto by the broker but this will show you what is going on....

Below are the formula to calculate pip value:

For pairs with USD as the quote currency (e.g EUR/USD)
Pip Value = 1 pip x Trade Size

For an example, let’s take EUR/USD with 4 decimal points price quote (e.g 1.3633).

If you trade 1 lot (1 standard lot, equal to USD 100,000 trade size), the pip value will be:
Pip Value = 0.0001 x 100,000 = 10 (US Dollar)

If you trade 0.1 lot (1 mini lot, equal to USD 10,000 trade size), the pip value will be:
Pip Value = 0.0001 x 10,000 = 1 (US Dollar)

If you trade 0.01 lot (1 micro lot, equal to USD 1,000 trade size), the pip value will be:
Pip Value = 0.0001 x 1,000 = 0.1 (US Dollar)

For pairs with USD as the base currency (e.g USD/CAD)
Pip Value = 1 pip x Trade Size/ Current Price

For an example, let’s take USD/CAD with 4 decimal points price quote and current price is 1.711.

If you trade 1 lot (1 standard lot, equal to USD 100,000 trade size), the pip value will be:
Pip Value = 0.0001 x 100,000 / 1.1711 = 8.54 (US Dollar)

If you trade 0.1 lot (1 mini lot, equal to USD 10,000 trade size), the pip value will be:
Pip Value = 0.0001 x 10,000 / 1.1711 = 0.854 (US Dollar)

If you trade 0.01 lot (1 micro lot, equal to USD 1,000 trade size), the pip value will be:
Pip Value = 0.0001 x 1,000 / 1.1711 = 0.0854 (US Dollar)

For Cross Currency (e.g EUR/GBP)
Pip value = 1 pip x trade size x Current Price of Quote Currency

Let’s take EUR/GBP with 4 decimal points price quote. The ‘Current Price of Quote Currency” should be taken from GBP/USD price. Say that GBP/USD price is 1.7258.

If you trade 1 lot (1 standard lot, equal to USD 100,000 trade size), the pip value will be:
Pip Value = 0.0001 x 100,000 x 1.7258 = 17.25 (US Dollar)

If you trade 0.1 lot (1 mini lot, equal to USD 10,000 trade size), the pip value will be:
Pip Value = 0.0001 x 10,000 / 1.1711 = 1.725 (US Dollar)

If you trade 0.01 lot (1 micro lot, equal to USD 1,000 trade size), the pip value will be:
Pip Value = 0.0001 x 1,000 / 1.1711 = 0.1725 (US Dollar)

If a currency doesn’t have xxx/USD form or your broker doesn’t offer xxx/USD form for currency you are willing to calculate, you should use 1/(USD/xxx) for The ‘Current Price of Quote Currency’. Take GBP/JPY for example, the calculation of pip value for this pair will be as follow:

Assuming your broker use 2 decimal points for GBP/JPY and current USD/JPY price is 100.40
Pip Value = 0.01 x 100,000 x 1/100.40 = 9.96 (USD)

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Last edited by websouth; November 25th, 2009 at 11:52 AM.
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Thx for the detailed answer.
So, if I'm correct, it's not necessary, if your account is funded in USD, you don't need to hedge anything if you're playing with EURJPY.
In one of your previous chart, +44 Pips on EURJPY, lets assume that was 1 lot (100.000$), the profit is supposed to be +44*100.000*0.0001 = +440$ .
The USDEUR and USDJPY can move as they want, the profit will always be 440$.

That looks a bit strange to me, but if it's working like this, good

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not quite...read the last 2 paragraphs

If a currency doesn’t have xxx/USD form or your broker doesn’t offer xxx/USD form for currency you are willing to calculate, you should use 1/(USD/xxx) for The ‘Current Price of Quote Currency’. Take GBP/JPY for example, the calculation of pip value for this pair will be as follow:

Assuming your broker use 2 decimal points for GBP/JPY and current USD/JPY price is 100.40
Pip Value = 0.01 x 100,000 x 1/100.40 = 9.96 (USD)


So you wouldn't be right at $10 a pip for E/J... Broker shows this calc to you so you don't have to each time... Otherwise it can get confusing.

So with current account size in eur/usd I might have buying power of $10 a pip. Yet at the same time AUD/USD might get me $18 a pip depending on current exchange rate....but then the volatility of the pair comes into play.

maybe this will help -
OK - right now in my trading account if I went all in... a pip is worth
EUR/USD - $890.
USD/JPY - $1340.
GBP/USD - $800.
USD/CHF - $1340.
AUD/USD - $1450.
EUR/JPY - $890.
GBP/JPY - $800.
NZD/USD - $1840.


Last edited by websouth; November 25th, 2009 at 11:48 AM.
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Thx again, but try to answer to this simple problem, all will be clear for me then :
- my account is funded in USD
- at 08:00am:
-> I go Long 1 lot of EURJPY @132.00, with
-> 1 USD = 0.65 EUR
- at 12:00am:
-> covering my 1 lot EURJPY @135.00, with
  1. hypothesis: 1 USD = 0.80 EUR
  2. hypothesis: 1 USD = 0.65 EUR
What is my P&L, in USD (so in my account) for these two hypothesis ?

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Last edited by sam028; November 25th, 2009 at 02:25 PM.
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simple problem, huh?
You are wanting me to do math...

read this.. it has a E/J example

forex: Understanding Positions and Profits in Forex

Your example would also have rollover associated with it... since it went past close.



++++++++
with some brokers you can chose what currency your account is denominated in.
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Well, I've already done the math myself, and my conclusion was that it seems for me, a Forex newbie, a bad idea to trade pairs where your based currency is not included (my account is in EUR, so no USDJPY trades for ex.).
I was just looking for a confirmation .

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Sam talks about the conversion costs and other expenses of trading Forex but a major expense for shorter term traders can be commissions. Especially if you are a scalper...
I have switched brokers in the past just for a lower commission rate... it ended up being a mistake because all brokers are not created equal.

anyhow

I think they heard my complaints...

Dear MB Trading Clients,
We are pleased to announce that effective Nov 29 th, 2009, our standard Forex commission rate for all* MB Trading Futures clients will be reduced to $2.95 per 100k USD Traded. For those trading at $5.00, this will be equal to a 41% savings on the cost of each trade executed on our system. This reduction in cost will apply to all MetaTrader4 and MBT Navigator accounts and be automatically set in your trading account at start-up on Sunday, November 29 th.

This is the first of many exciting changes to come as we get ready to enter the New Year.


This is fantastic news.
I just got a pay raise....

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