Introduction to currency speculation

Introduction to currency speculation

Currency speculation

is the exchange of one currency for another with a view to profit

as a result of favorable changes in exchange rates.

Whether we like it or not, but each of us individual with some free funds and stable income, is constantly involved in the currency speculation.

The fact that we have to choose which currency to keep their funds, and the correctness of this choice depends on - we will build upon their own savings or on the contrary - has lost a great part of them.

A simple example:

Someone A had at the beginning of June 2008 savings in the amount of 500,000 rubles in bank ruble deposits, past, say, May 31.

What to do next with this sum? Variations:

Open a new ruble deposits at 10% per annum

or do the same

dollars or

in euros, but at 5% per annum.

Time deposits in all variants - for six months.

Option 1. At the time of the expiration of the contribution amount in the account will be:

500000 x ( 1 +

Of 10%

2

) = 525000 rubles

Option 2. Converting rubles into dollars at the exchange rate (at the time) about 23.80 rubles per dollar.

It turns out 21,008 dollar. At the time of the expiration of the contribution amount in the account is:

21008 x ( 1 +

5%

2

) = 21533 U.S.

Converting dollars back into rubles at the rate (at the beginning of December 2008) about 27.90 rubles per dollar.

It turns out 600,770 rubles.

Option 3. Translate into euros at the exchange rate (at the time) about 36.90 rubles per euro.

It turns out 13,550 euros. At the time of the expiration of the contribution amount in the account will be:

13550 x ( 1 +

5%

2

) = 13889 euro

Converting Euros back into rubles at the rate (at the beginning of December 2008) about 35.40 rubles per euro. It turns out 491,670 rubles.

What happens? In the second case we were able to obtain additional income for their savings, compared with the first option in the amount of 75,770 rubles. And in the third - lost 8,330 rubles, even compared to the original amount of 500 000!

Alexander Elder

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This example illustrates how changes in exchange rates may affect the thickness of our wallet. But the possibilities offered to us today the foreign exchange market are not confined to the choice of currency to keep their savings. The development of Internet technology and finance allows us to actively participate in the process of speculative trade to a regular profit! Everything you need to do - a broker that gives the opportunity to make speculative transactions, computer with internet access, a certain amount of free money and, most importantly, a desire to improve in this (not the easiest) of activity.

So, let's go in order.

To start trading you must open your broker real trading account and enroll him in the amount of money you intend to operate (although the train is better in the virtual account "). Let it be the sum of $ 1000. What can be done with such a small sum? Here we come to the rescue, and such a mechanism as "leverage".

Leverage, which provides us with a broker, allows to operate the borrowed amounts that exceed a multiple of our live trading account. The amounts are refundable to the broker, but all the profits, which can be obtained when using them is still with us. Consider this example:

For example, December 16, we forecast growth in the euro against the dollar and decided to buy 10 000 euros for dollars, taking advantage of leverage, the rate of 1.3360.

We hold the broker 13 360 dollars and buy them 10,000 euros. A few hours later the euro has grown and we decide to sell the euro back at a rate 1.4020. Our revenues will amount to 14,020 dollars, 13,660 from which to return the broker. The remaining $ 360 from the transaction is our profit.

$ 360 profit on a sub-1000 in just a few hours - not a bad result!

Ryan Jones

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But do not think that all so simple. After all, the euro and could fall! Let's look and a hypothetical option.

Let the euro against the dollar began to fall and a couple of hours down to a mark 1.3580.

It is easy to see that the depreciation of the euro portends a greater and greater losses, and to prevent this money-losing deal should close in time that we are doing at around 1.3580 - sell euro.

Proceeds from the sale will amount to 13,580 dollars, and return to the broker, we have 13 660. Missing $ 80 broker fog from our trading accounts, and thus, it will remain 920 dollars. We have a $ 80 loss.

What follows from this conclusion? In the carry trade happens both gains and losses, as leverage in transactions should be used carefully, because it can increase not only the potential profit, but also potential losses. (By the way, it should be noted that the leverage is usually limited to 1:100).

In general, the result of any speculation can be calculated by the following formula:

The result of the transaction = (Course opening of the transaction - Course closing) * Volume of transactions

For the above example the calculation would be:

(1.4020 - 1.3660) * 10 000 = 360 dollars

(1.3580. 1.3660) * 10 000 = -80 dollars

What is the potential profitability of speculative trading in the currency market?

Of course, with fair share of luck and acceptance of high risks is quite possible increase, their live trading account several times in one day. But it should be understood that this trade will sooner or later end sadly.

Therefore, it is better to take a more conservative approach to risk-taking, which at a literate making trading decisions and transactions can generate an average of 5-10% of income per month. Is it much or not enough? "Let's calculate.

At the 5% monthly returns initial $ 1000 will turn in 1050 at the end of the month, a month later will be:

1050 * (100% + 5%) / 100 = 1102.5 dollar etc.

It is easy to calculate that by year-end account balance should reach 1796 dollars, ie 80% of annual profits.

Assuming 10% of monthly revenue, then at the end of the year in the account get 3148 dollars and is already more than 200% per annum!