On the Forex market, you sell or buy currencies.mountain of money
Placing a trade in the international foreign exchange market is very simple: the mechanism of a trade is similar to those in other markets (such as the stock market), so if you have some trading experience, you should be able to understand fairly quickly.
The purpose of Forex trading is to exchange one currency for another, assuming that the price will change so that the currency purchased will appreciate against the currency you sold.
*10 000 EUR x 1,18 = 11 800 USD
**10 000 EUR x 1,25 = 12 500 USD
An exchange rate is the ratio of one currency to another. For example, the USD/CHF exchange rate indicates how many US dollars can buy a Swiss Franc, or how many Swiss Francs are needed to buy a US dollar.
How to read a quote on Forex
Currencies are always quoted in pairs, such as GBP/USD or USD/JPY. The reason why they are quoted in this way is justified by the continuous alternation of purchases and sales of one currency against another. Here is an example of the foreign exchange rate for the British Pound against the US dollar:
The first currency listed to the left of the “slash” (” /”) is called “base currency” (in this example the British Pound), while the second on the right is called “quote currency” (in this example the US dollar).
When a purchase is made, the exchange rate indicates the amount to be paid in quotation units to buy a unit of the base currency. In our example above, you will have to pay 1.51258 US dollars to buy 1 British Pound.
In a sale, the exchange rate indicates the amount to be paid in quotation units to sell a unit of the base currency. In our example above, you will receive 1.51258 US dollars by selling 1 British Pound.
The base currency represents the “basis” of the purchase or sale. If you buy EUR/USD, it simply means that you buy the base currency while selling the quote currency. More simply, we buy the EUR to sell the USD.
You will buy the pair if you think the base currency will appreciate (appreciate in value) relative to the quote currency. You will sell the pair if you think the base currency will depreciate (lose value) against the quote currency.
First, you should determine whether you want to buy or sell.
If you wish to buy (which means buying the base currency and selling the quote currency), the base currency must appreciate in order to be able to resell it at a higher price. In terms of trading, this is called “long term” or taking a “long position”. Just remember: long = purchase.
To sell (which means sell the base currency and buy the quote currency), the base currency must depreciate in order to be able to buy it back at a lower price. This is called “short term” or “short position”. Remember: short = sale.
“Why does the quotation come under two different prices? »
All Forex quotes are represented as bid and ask. Most often, the bid price is lower than the ask price.
The bid represents the price at which your broker can buy the base currency in exchange for the quote currency. This means that the bid represents the best available price at which you, the trader, will sell in the market.
The ask represents the price at which your broker is willing to sell the base currency in exchange for the quote currency. This means that this “ask/demand” price is the best available price at which you will buy on the market. “Ask” does mean “offer price”.
The difference between “bid” and “ask” prices is called the spread.
On the EUR/USD quoted above, the supply price is 1.34568 and the demand price is 1.34588. See how this brokerage system makes trading so easy.
If you wish to sell the EUR, click “Sell” and you will sell euros at the price of 1.34568. If you want to buy the EUR, click “Buy” and you will buy euros at the price of 1.34588.
Let us now look at other examples in a following article.
How To Make Money With Forex Trading
Know when to buy or sell a currency pair
What is a Forex Pip?
What is a batch on Forex?
Impress your girlfriend by speaking Forex slang
Types of Forex Orders
Prepare your success by trading on a demo account
Forex trading is not a magic formula for enrichment