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The question I asked my self today about Forex


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The question I asked my self today about Forex

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roonius's Avatar
 
Posts: 132 since Jun 2009
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Hello to all.

I have never traded the forex market myself, however I do programming service for people who do trade forex.

I was thinking today:

Let's say I "have information" that dollar will rise tomorrow against the euro.
I want to buy Dollar and sell Euro

Assuming I have ability to make only one entry with one lot how do I take advantage of the possibility that tomorrow or in the year 1 dollar will be 1000000 euro (some kind of super inflation of euro)?

Can anybody answer this?

If I short $EURUSD, so all I make is what 100000 euro is worth today?
Am I missing something?

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Market Wizard
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DavidHP's Avatar
 
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I assume that your client can only make one lot trades because of their account size.
If that is true, then they would need to use a compounding model to trade.

Because the markets are dynamic and move in waves, you could take advantage of this by entering the market with one lot. Once the first wave has exhausted, exit the trade. (If your indicators are good enough, you could even reverse the trade and make a shorter counter-trend trade.)

But assuming you are only shorting EURUSD then you would wait for the next wave to begin. With the additional capital you have from the last trade, increase your lot size and take another trade.

Ride the wave, repeat.
Ride the wave, repeat.

With each repeat increase (compound) the lot size of the trade.
After a few trades, the one lot trade will be 10, then 20, etc and you will be very happy.

You may have heard this riddle:

"Would you rather have $10,000 per day for 30 days or a penny that doubled in value every day for 30 days?"

If you choose the $10,000 a day, at the end of 30 days you will have $300,000.

If you choose the penny compounded you will have over $5 million.

All because of compounding.

This ride the wave compounding trading, can be done in one day or over the course of years. The principle is the same.

Is that what you were seeking?




roonius View Post
Assuming I have ability to make only one entry with one lot how do I take advantage of the possibility that tomorrow or in the year 1 dollar will be 1000000 euro (some kind of super inflation of euro)?

Can anybody answer this?

If I short $EURUSD, so all I make is what 100000 euro is worth today?
Am I missing something?


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roonius's Avatar
 
Posts: 132 since Jun 2009
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Thanks for the answer, but it is not what I was after.

Basically my point is that you cannot use "buy and hold" usd vs euro.

You can buy and hold euro vs usd.

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If you want to buy (which actually means buy the base currency and sell the quote currency), you want the base currency to rise in value and then you would sell it back at a higher price. In trader's talk, this is called "going long" or taking a "long position".

If you want to sell (which actually means sell the base currency and buy the quote currency), you want the base currency to fall in value and then you would buy it back at a lower price. This is called "going short" or taking a "short position".

If you hold over night you might be subject to rollover charges. Since every currency trade involves borrowing one currency to buy another, interest rollover charges are part of forex trading. Interest is paid on the currency that is borrowed, and earned on the one that is bought. If a client is buying a currency with a higher interest rate than the one he/she is borrowing, the net differential will be positive (i.e. USD/JPY) - and the client will earn funds as a result.

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NickA View Post
If you want to buy (which actually means buy the base currency and sell the quote currency), you want the base currency to rise in value and then you would sell it back at a higher price. In trader's talk, this is called "going long" or taking a "long position".

If you want to sell (which actually means sell the base currency and buy the quote currency), you want the base currency to fall in value and then you would buy it back at a lower price. This is called "going short" or taking a "short position".

If you hold over night you might be subject to rollover charges. Since every currency trade involves borrowing one currency to buy another, interest rollover charges are part of forex trading. Interest is paid on the currency that is borrowed, and earned on the one that is bought. If a client is buying a currency with a higher interest rate than the one he/she is borrowing, the net differential will be positive (i.e. USD/JPY) - and the client will earn funds as a result.


I want to buy USD against euro... and hold it forever.
Point - the profit is limited.

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Ok so which is the base currency when you trade $ against euro? All the information is above but it will likely be more use to you if think it out for yourself Would you go long or short?

Most brokers will let you hold for ever (check with them) al the while you have enough margin. You may have rollover charges (again for the reasons given above).

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Last Updated on January 13, 2010


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