Hello !
"A trader with a $10,000 account balance decides that the US Dollar (USD) is undervalued against the Euro (EUR). The current bid/ask price for EUR/USD is 1.2348/1.2350 – meaning a trader can buy 1 EUR for $1.2350 USD or sell 1 EUR for $1.2348 USD. The trader decides to sell EUR (buy dollars) by selling 1 standard lot. With leverage at 100:1 or 1%, initial margin deposit for this trade is $1,000, leaving the account balance at $9,000. As anticipated, the EUR/USD drops 48 pips to 1.2298/1.2300. To exit the position the trader would close 1 lot at 1.2300 In this scenario the trader has realized a profit of 48 pips or $480 US Dollars."
This is a Forex education from ForexMeta.com.
I have questions. Please point me where I am right or wrong on each item.
1. USD is undervalued means exchange rate currently is high and so exchange rate will go down soon. "Anticipated" means exchange rate will go down and it means from 1.2348/1.2350 to lower number/lower number(such as 1.2300/1.2345 here in this example 1.2298/1.2300)
2. It says 48 pips difference but 50 pips and I think it is a calculation mistake.
3. Why does the trader decied to sell EUR?
4. Sell Euro at 1.2348?
5. After EURUSD drops to 1.2298/1.2300(Does this mean exchange rate go down?) the trader sell Euro or buy Euro?
6. First sell Euro then buy Euro? Sell Euro at 1.2348 and buy Euro at 1.2300?
7. Where did 48 pips come from?
8. 1 pip is a $10. Where does it come from?
I'm posting it here because it has been hard to find answers !!! Thanks very much for your help !
Regards.
"A trader with a $10,000 account balance decides that the US Dollar (USD) is undervalued against the Euro (EUR). The current bid/ask price for EUR/USD is 1.2348/1.2350 – meaning a trader can buy 1 EUR for $1.2350 USD or sell 1 EUR for $1.2348 USD. The trader decides to sell EUR (buy dollars) by selling 1 standard lot. With leverage at 100:1 or 1%, initial margin deposit for this trade is $1,000, leaving the account balance at $9,000. As anticipated, the EUR/USD drops 48 pips to 1.2298/1.2300. To exit the position the trader would close 1 lot at 1.2300 In this scenario the trader has realized a profit of 48 pips or $480 US Dollars."
This is a Forex education from ForexMeta.com.
I have questions. Please point me where I am right or wrong on each item.
1. USD is undervalued means exchange rate currently is high and so exchange rate will go down soon. "Anticipated" means exchange rate will go down and it means from 1.2348/1.2350 to lower number/lower number(such as 1.2300/1.2345 here in this example 1.2298/1.2300)
2. It says 48 pips difference but 50 pips and I think it is a calculation mistake.
3. Why does the trader decied to sell EUR?
4. Sell Euro at 1.2348?
5. After EURUSD drops to 1.2298/1.2300(Does this mean exchange rate go down?) the trader sell Euro or buy Euro?
6. First sell Euro then buy Euro? Sell Euro at 1.2348 and buy Euro at 1.2300?
7. Where did 48 pips come from?
8. 1 pip is a $10. Where does it come from?
I'm posting it here because it has been hard to find answers !!! Thanks very much for your help !
Regards.