In this chapter, we will learn how we make a profit in the forex market. Please install the MT4 Demo Account to your PC/Laptop to understand the next chapter.
Buy, Buy, or Long
We can make money with forex trading when we ‘buy’ at a low price, and ‘close’ at a high price. For example, if you enter a Buy USD/CAD position means you. Convert your CAD to USD value. Close is to close the trading position.
Buy is also known as Long.
Buy is done when we expect the market to be bullish (upward)
As in the picture, you BUY the USD/CAD pair at the price of 1.28565 and CLOSE at 1.32333
1.32333-1.28565 = 0.03768 equivalent (376.8 Pip). This means you profit at 376.8 Pip.
Attention:
The pip calculation is calculated by subtracting the decimal point on the result minus the higher and lower values. For example, as above, the result minus 1.32333-1.28565 is equal to 0.03768. Remove the decimal point it will be 3768 points.
10 points equal 1 pip. To convert a point value to a pip, the point value needs to be divided by 10 to 376.8 only. So it will be referred to as 376.8 pips.
The Pip value can be determined by you before entering a trading POSITION either BUY or SELL. Let’s say in the early days, you put the price of 1 Pip equal to USD1.00. This means that as soon as you CLOSE the BUY position, you have gained USD376.80. You will be shown how to determine the pip value in the next chapter.
SELL or Short
We can also make money with forex trading when we Sell at a high price and Close at a low price. For example, if you enter a Sell GBP/JPY position, this means you exchange your GBP to get JPY. The concept is not the same as selling goods because these currencies are pairs, i.e. called Pairs. You can enter SELL first even if you do not have a BUY position.
Remember, to profit, you need to enter SELL when the price is high and CLOSE when the price is low.
As in the picture, you SELL the GBP/JPY pair at the price of 186.053 and you CLOSE at the price of 184.117. 186.053-184.117 = 1.936 equals 193.6 Pip. This means you profit at a rate of 193.6 Pip.
Attention:
The pip calculation is calculated by subtracting the decimal point on the result minus the higher and lower values. For example, as above, the result minus 186.053-184.117 is equal to 1.936. Just like the previous example, remove the decimal point on that number and divide by 10 making it only 193.6, so it will be referred to as 193.6 pips.
The Pip value can be determined by you before entering a trading POSITION either BUY or SELL. Let’s say in the early days, you put the price of 1 Pip equal to USD1.00. This means that as soon as you CLOSE the BUY position, you have gained USD196.30.
Continue studying the next chapter.
