apples and oranges... basic questions

[Cryper]

Hi everyone.

Newbie here, trying to figure out this forex thing. Trying really hard. it's really hard for me to grasp the concepts since this isn't really my thing (yet!)

so i'm going to rephrase it a little and you guys tell me where I'm wrong.
for example lets turn a currency pair into fruits:

instead of EUR/USD lets say APPLES and ORANGES. The basic principal of forex in a scenario:

1 apple = 1 orange

so i trade my orange for an apple. now i have 1 apple.
later the market changes and now it costs:

1 apple = 2 oranges.

so i sell my apple and now i get back a balance of 2 oranges?

that sound right?

then i get a broker. lets call him a wholesaler. so my wholesaler tells me i can trade with leverage of 1:20 meaning for every orange i trade he'll let me get 20 apples on loan.

so now 20 apples = 1 orange

so i spend lets say 10 oranges and now i got 200 apples.

then the market moves up that for every 1 apple it costs 10 oranges.

so now i close this deal and end up with 2000 oranges.


and my wholesaler says i need to have a certain amount of oranges (Margin) ready in my account with him. and that he'll take a cut of my profit or loss based off of ...errr... well i dont get how he gets his cut but i know he does get a cut somehow from the spread.

i know it sound silly but i need some physical way of thinking of this to understand it better. i've used demo accounts and have made and lost money but i don't know how i did it. and i'm sure there are other factors i'm not taking into account here.

please answer best you can. thanks.
Cryper

[Rich14304]

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Cryper,

Welcome to MoneyTec. You brought up a few very good questions by using associations. Those questions are actually a Lesson or two or three in explanation and the reply will be rather long but maybe I can help a little and point you in the right direction at the same time.

First to mention is CONGRATULATIONS for following the very first RULE in FOREX…DEMO EVERYTHING. DEMO is more than a PLATFORM offered by the broker; it is a philosophy of; CHALLENGE EVERYTHING UNTIL IT (whatever ‘it’ is) CAN BE PROVEN AND UNDERSTOOD FOR AND BY YOU.

You will discover the association or the relationship-of- the- association to articles (currencies and to another degree, TIME) is paramount.

The confusion begins with the misidentification of the listing, or the currency pair, and in your DEMO, the fruit arrangement and the presentation of the discussion itself.

I shall do my best to stick relative to your analogy while paralleling some FOREX terms and clarifying statement clauses.

It may be of BENEFIT if you were to note that Nick, the moderator here at Money Tec, opened a thread called definitions in the Beginner Forum, and it might be useful if you read the definitions in posts #3 and in post #5 for starters as they explain pretty well what the base currency, the spread, and essentially how the broker gets a sliced of the apple and at the same time, it also provides a way of viewing the market so you can profit using resistance and support as identification of PRICE ACTION and also as a strategy, either before or after reading this. Here is a quick link> Definitions of forex terms.

First we have to have what is called the CURRENCY PAIR as FRUIT. The BASE CURRENCY which is the FIRST CURRENCY listed in the ‘CURRENCY PAIR’.

So in your DEMO; EUR/USD as APPLES and ORANGES; The BASE CURRENCY or the APPLES are the (first currency in the pair) FRUIT (EUR-currency) spoken of first.

Hence, APPLES/ORANGES, we relate to what we are doing with the APPLES.

If we are buying apples then we are selling oranges and if we are selling apples then we are buying oranges. Note the arrangement, apples: oranges. The FOCUS is on the APPLES.

When you place on the table as an exchanged of your ORANGE for the APPLE, what you did was you were willing to SELL the APPLE (USD) and at the same time of selling that APPLE you were BUYING (BOUGHT-PURCHASED) the ORANGE (EUR).

Now the VALUE of the association in your DEMO is to state the ORANGES increased in VALUE which means the APPLES DECREASED in VALUE, making the relationship, remember our BASE… APPLES FIRST… you were selling apples (EUR) 1:2.

You SOLD APPLES and sealed the deal when that VALUE of the APPLE returned two (2) Oranges.

Now that may sound confusing because we associate buying and selling as the exchange but WHEN we associate that buying and selling, in discussion, (and on the platform) we do so with the BASE FRUIT first.

The definition posted helps in understanding in this regard and for further and better understanding be sure to click the link provided above.

Now when you decided to speak with the broker (market maker) and he said ‘CRYPER if you want to exchange APPLES, what do you have to back this exchange?’

And you said, ‘I have a basket of ORANGES’ means you funded your account with USD.

The broker said back to you, ‘well, if you want to purchase APPLES (or deal in apples), I require a SECURITY and you will have to place into TRUST some of those Oranges, and if you do, you just made your Margin and at the end of the deal, I will return those Oranges to you.’

Now, the broker says, I have GREAT NEWS for you, since we don’t really deal in single apples and we deal in BUSHELS (Standard LOT = 100k apples) and OUR POLICY is for you to participate in the exchange, I will factor a RATIO (leverage) exchange for you at 20:1 per Bushel.

Now, in your DEMO, you have APPLES that MOVES UP. That is not quite right, you see, the APPLES DECREASED in VALUE giving a RETURN of MORE ORANGES. That is where your confusion lays and the definitions may assist in that regard.

In your DEMO example when the market ‘MOVED’ the leverage is actually 20:1 so when the market did move but one pip (see definitions) the ratio permitted 20 apples to one orange but the EXCHANGE is done on one BUSHEL. You were commanding (exchanging BUSHELS) but you only had an Orange.

When the deal is done, you are NOT receiving the VALUE of the BUSHEL, you are receiving the fractionalize ratio of the BUSHEL at 1:20.

The spread (see definitions) is the difference between the buying and the selling price the broker takes as in PROFIT and is gained (paid) at the end of the transaction (CLOSE).

So remember, when talking APPLES and ORANGES be sure to address the correct PAIRS in your BUSHEL.

I hope this helps,

Rich

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[Cryper]

I appreciate the fast response. will look over those threads you specified. Thank you.

I actually have more questions now but I think I'll search the threads instead of causing possible unnecessary reposts.May u gain a lot of pips your way,
Cryper

[Rich14304]

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Cryper,

Of course you are welcome and you may note, the definitions (the link provided above) are contained within a single thread and it is but two posts, #3 and #5.

Thank you for your consideration, regarding investigation prior to re-posts, and after reviewed, if you were to have additional questions, you are certainly welcome to post and we will do our best to address them.

You are also encouraged to partispate in the forum, with opinion, comments, suggestions and as shared information or experiances.

May You Learn To Trade Well,

Rich

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[nick74]

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Cryper,
You are also encouraged to partispate in the forum, with opinion, comments, suggestions and as shared information or experiances.

May You Learn To Trade Well,

Rich

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Yeah I want to give you same advice as Rich did. Participating in discussions will definitely help you in getting more familiar with forex.

All the best for your trading.

Thanks,
Nick

[ampris2000]

green candle buy and red candle sell. it's that easy.

advanced, if price is at the high, look to see if there are sellers or if price breaks previous high. buy /sell accordingly.

same when price is at the low. (see if there are buyers or price makes new lows)

[Rich14304]

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Ampris,

Thank you for the simply stated contribution. It does have merit and should be considered.

I accept what Ampris as stating is the use of a Visual approach to Market Dynamics can be considered, ‘easier’ than the use of complex mathematics involved when designing or programming systems with indicators .

Since, this is the Beginner's Forum and the post may be misconstrued without an expanded-definition by those just studying R/S. The Rule of Resistance and Support is: Price moves back-and-Forth-and- back- again between the Levels of Resistance and Support.

By the time the Trader notes the ‘color’ of a Stick, it is upon the CLOSE of that Period. If one were to use only the color (Open/Close) as a directional indicator, one would SELL on CLOSE of a Green stick.

Color BASE, as a visual interpretation of PRICE ACTION, trading-strategy, can be profitable, following the CLOSE to the R/S Bandwidth.

Noting Price Action, R/S PRICE-Ranges 70-80% of the Time. Deviations to the Price-Average, as noted by indicators of sorts, or simply watching the Open and Close and seeing the differences in the OPEN/CLOSE between the Current and X-Periods, indicates the VELOCITY, VOLUME or MOMENTUM change.

They all mean about the same thing; more (volume) contract (LOT) exchanges than AVERAGE occurring. This may also be considered an increase in AVERAGE TRUE RANGE.

The changing of these volatilities or Volumes adds to a direction BIAS when comparing the CLOSE to R/S.

It (directional bias) becomes more noticeable when comparing Multiple-Time-Frames.

In gaining a directional BIAS, the focus should always be on the current (last) Closing Price bar FIRST in relation or comparison to any Momentum indicator to X-previous-periods.

The increase/decrease of deviations from AVERAGE, as Price moves to, or from, Resistance and Support areas, provide clues to potential BREAK-OUTS.

Noting Bandwidth, as re-active H/L Resistance and Support levels, indicates as a general Rule of Thumb, the Market-Makers Range of Operations, and provides the Trader a gauge to measure RISK, as both Loss and Profit.

Good topic Ampris, as it opened the doors for visual interpretation of the markets dynamic and a base to build on.

Rich

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