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.
- 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)
- It says 48 pips difference but 50 pips and I think it is a calculation mistake.
- Why does the trader decied to sell EUR?
- Sell Euro at 1.2348?
- After EURUSD drops to 1.2298/1.2300(Does this mean exchange rate go down?) the trader sell Euro or buy Euro?
- First sell Euro then buy Euro? Sell Euro at 1.2348 and buy Euro at 1.2300?
- Where did 48 pips come from?
- 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.
