Buying and selling
Buying and selling
Examples of buying and selling
For each currency combination, there are two prices, called the "bid" or "sell" price, and the "ask" or "buy" price. The difference in price between the two is called the "point difference", also known as transaction cost. In the first example below, the point difference is three points (pips). A standard 100000 yuan account has a 1 point (pip) value of $10 in euros/dollars.
Margin is an honest deposit, through which investors can hold positions far greater than their actual nominal value.
If the funds in the account fall below the margin requirement, DDO will liquidate some or all of its positions. Even in situations where market conditions fluctuate greatly and quickly, customer account balances will not show negative values.
In the following example, investors buy currency portfolios and expect to profit from rising exchange rates. Due to the fact that investors open their first hand positions in euros/dollars, the required or used margin is 1000 euros. The available margin is the amount that can be used to continue placing orders or maintain trading losses. If the net value of the account (account value) is lower than the used margin due to trading losses, its position will be automatically closed.
In the foreign exchange market, investors use the principle of leverage to profit from exchange rate fluctuations between two different countries. Leverage is a loan provided to investors by a broker who is opening their foreign exchange account. When an investor decides to invest in the foreign exchange market, he or she must first open a margin account with a broker. Under normal circumstances, the leverage ratio is 50:1 and 100:1 based on the size of brokerage and investor positions. The standard transaction involves 100000 currency units, and the current scale of such transactions typically provides a leverage ratio of 50:1 or 100:1.
Taking the transaction of 100000 yuan as an example, the margin ratio is 1%, and the investor only needs to deposit $1000 into his or her margin account. The leverage ratio for this type of transaction is 100:1, which is significantly higher than the 2:1 ratio in the typical stock market and the 15:1 ratio in the futures market.
Although significant profits can be achieved through leverage, leverage can also have a counterproductive effect. For example, if your position develops in the opposite direction as you wish, it will significantly amplify your potential losses.