basic question about the value of pairs traded

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wonkabar
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basic question about the value of pairs traded

Post by wonkabar » Fri Nov 05, 2004 2:03 pm

I am new to forex (though with decent amount of futures, options and equities experience) and have a basic question.

Say I have an account denominated in usd and I want to trade $10k per pair. Do I need to convert the non usd pairs into usd or does it happen automatically by the broker? Say for example I am trading eur/gbp. Would I say I am buying $10k or would I have to convert it into the euro equiv to that?

A similar question would be how do people position size across pairs with different pip values? If I am still trading $10k per trade should I actually be trading more in pairs like usd/chf which have a lower value than in pairs like eur/gbp which are worth more?

any help or advice on how exactly people look at this would be appreciated. thanks

bmitchell
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Re: basic question about the value of pairs traded

Post by bmitchell » Wed Nov 24, 2004 10:57 am

In forex, it is my understanding that trades work as follows:

Let's say you are trading eur/gbp and the rate is 0.6992 and you are trading a mini, then to go long you would buy 10k euros, and would pay for them by selling 6992 british pounds that are borrowed.

Let's say the trade works out, and the rate moved to 0.7000 then you would sell the 10000 euros and buy 7000 GBP. This leaves you with 8GBP profit.

Your profit or loss is always in the 2nd currency. By convention 1 pip is roughly equivilant to 1 dollar, sometimes a bit more sometimes a bit less.

For position sizing, I use fixed fractional betting, and multiply that by the pip value (1.86 or so for eur/gbp currently). Divide that by the pip stop for the position, and I get the number of 10k units I can buy
wonkabar wrote:I am new to forex (though with decent amount of futures, options and equities experience) and have a basic question.

Say I have an account denominated in usd and I want to trade $10k per pair. Do I need to convert the non usd pairs into usd or does it happen automatically by the broker? Say for example I am trading eur/gbp. Would I say I am buying $10k or would I have to convert it into the euro equiv to that?

A similar question would be how do people position size across pairs with different pip values? If I am still trading $10k per trade should I actually be trading more in pairs like usd/chf which have a lower value than in pairs like eur/gbp which are worth more?

any help or advice on how exactly people look at this would be appreciated. thanks

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