What is forex?
How does trading on forex work?
You buy or sell currencies on the forex market?
We’ve tried to explain everything you need to know about forex in this article especially for people who are still wondering how to get started on forex or how they could make it, read carefully and we’ll guarantee that you could start trading on forex from today.
It is easy to place a trade on the foreign exchange market. A trade’s dynamics are very similar to those found in other financial markets (like the stock market), so you should be able to pick it up pretty quickly if you have any trading experience.
The goal of forex trading is to exchange currency for currency expected to change the price.
In addition, the currency you purchased would increase in value relative to the currency you sold.
An exchange rate is literally the ratio of one currency to another.
The USD / CHF exchange rate, for instance, shows how many US dollars you can buy one Swiss franc, or how many Swiss francs you need to buy one US dollar.
HOW TO READ A FOREX QUOTE ?
Currencies, like GBP / USD or USD / JPY, are always quoted in pairs. The reason they are quoted in pairs is that you buy one currency at the same time and sell another in that foreign exchange trade.
Here is an example of a British pound foreign exchange rate versus the U.S. dollar:
The first currency mentioned on the left of the slash (“/”) is known as the base currency (the British pound in this example), while the second currency on the right is called the counter currency or quote currency (the U.S. dollar in this example).
The exchange rate tells you how much you have to pay in quote currency units to purchase ONE base currency unit when you purchase. In the above example, to buy 1 British pound, you must pay 1.51258 U.S. dollars.
The exchange rate informs you how many quote currency units you get to sell ONE unit of the base currency while trading.
In the above case, when you sell 1 British pound, you will earn 1.51258 U.S. dollars.
The reference currency is the buy or sell “basis.”
When you buy EUR / USD, you simply buy the base currency and sell the quotation currency at the same time.
In caveman talk, “buy EUR, sell USD.” If you believe the base currency will appreciate (gain value) in relation to the quote currency, you would buy the pair. If you think that the base currency depreciates (loss value) relative to the quote currency, you would sell the pair.
If you want to buy or sell, you must decide first.
If you want to buy (which in fact means purchasing the base currency and selling the quota currency), you want to increase the value of the base currency and then sell it back at a higher cost.
This is called “going deep” or taking a “long position” while speaking to investors. Just remember: long= buy.
If you want to sell (which actually means selling the base currency and purchasing the quote currency), you want to reduce the value of the base currency and then buy it back at a lower price.
This is referred to as “going short” or “going short.” Recall: short = offer.
THE BID ASK AND SPREAD
Two rates quote all forex quotes: the bid and the ask.
The bid is usually lower than the price of the offer.
The bid is the price at which your broker is prepared to buy the base currency in return for the quote currency.
This means that the bid is the best price available to sell you (the trader) to the consumer.
The broker will buy it from you at the bid price if you want to sell it.
The problem is the value the broker is going to sell the base currency in exchange for the quote currency.
This means that the asking price is the best price available to buy from the market.
Another term for query is the value of the bid.
If you want to buy it, it will be sold to you by the broker (or offered) at the request price.
The SPREAD is defined as the difference between the bid and the offer value.
On the quote above, the price of the bid is 1.34568 and the price of the request is 1.34588. Look at how this broker helps you to sell your money away so easily.
If you want to sell EUR, you are going to click “Sell” and sell EUR at 1.34568.
If you want to buy EUR, you are going to buy EUR at 1.34588 and you are going to buy EUR.
Here’s an example that brings everything we discussed in this lesson together: