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Monday, 30 July 2012

Trading rules

If you trade a certain product, and you think that its price will rise, you will buy it and if its price indeed rises, you will profit when you sell it, and if you are wrong and its price goes down, you will lose. For example, if you trade wood, and you think the wood price will rise, you buy 10 tons of wood when the wood price is 100 USD per ton. And later you sell it when the price rises to 150 USD per ton, you have profited 500 USD. If you thought that the wood price would decrease, you would wait until the price reached 50 USD per ton, and then you would have bought the same 10 tons at only 500 USD.

The rules are: 

A trader who thinks the value of his product is going to rise, buys more goods and waits for the price to rise in order to sell. A trader who thinks that the value of a product is going to fall, rushes to sell the goods and make the most of his money. Traders do not always have to lose everything or gain everything, the trade can be stopped in the middle, and such a situation will be expanded upon further later. Let's translate this into terms of Forex market: If you expect the exchange rate of a currency to rise, you will buy it. If you expect the exchange rate of a currency to drop you will sell it. The sum which you profit or lose depends on the volume of the transaction which you perform. The greater the transaction is, the more you can profit, but you will take on a greater risk and the smaller the transaction is, the smaller the profit will be but you will have taken on a smaller risk. Trading currencies is exactly like buying and selling wood, tomatoes or cucumbers. We buy the goods when we think the price will rise, and we sell the goods when we think the price will fall.

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