Foreign Exchange Accounting Example
foreign exchange accounting example
Foreign Exchange Accounting Entries – Don’t Trade Without These Strategies
Foreign Exchange Accounting Entries
Trading Forex (also known as foreign exchange trading) is an exciting way to make heaps of money, however with all business opportunities only some people are successful. Today there are many good trading systems being offered online, so why isn’t every one making heaps of money. The answer is simple, there is more to trading than placing a trade. I have researched the different behaviour of those who have maintained a successful trading career and those who have similar trading systems but have not been able to sustain a trading business and have written down tips and strategies that will help you take your trading to the next level.
Foreign Exchange Online Trading Tip.
The Real Cost of Foreign Currency Exchange Trading.
All Brokers will advertise a “no commission” policy, however it is important to understand the costs of trading. The Brokers are there to make money and they want your business, accordingly they will try to attract you with their advertising.
The way the prices are quoted shows 2 prices, for example EUR/USD 1.3800/5. This means the bid price (what you get selling) is 1.3800 and the ask price (what you pay) is 1.3805. The difference between the two prices is known as the Spread and this is what the Brokers charge for every trade. Before signing up with a Broker I would check out what spreads he is offering. Foreign Exchange Accounting Entries
The points to note are that the size of your account could affect the spread, for instance a full account trading lots of 100,000 will usually have a smaller spread than a mini account. The 2nd point is that different currency pairings also have different spreads. The more popular EUR/USD, and GBP/ USD often attract a smaller spread of 2 or 3 pips, other pairings might have a spread of 5 pips. 5 pips as a cost does not sound very high if you are trading a mini account with a pip being worth around $1 however if you are leveraging a full account your cost could be $40.00. per trade.
You will be tempted to enter 4 to 10 trades per day if you are looking at very short trading times. Multiply this out and your costs are $3,500 to $8,800 per month. The way to avoid this cost is to be more selective about your trades, in other words trade less often and remember if your stop loss is very close to your entry you run the risk of being stopped out (losing) your trade even if there is a small dip in the trend you are trading with before it goes your way.
If you place frequent trades always factor the spread into your accounting. An unexpected high deficit from your Broker will be an unpleasant surprise. Foreign Exchange Accounting Entries
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