Every Individuals aim is to make more money while trading Forex but before I proceed with today's topic, I'd love you to go through my previous publications about Forex incase you missed any.
Trading on Forex involves exchanging currency pairs, still similar to those found in other financial markets (like the stock market), so you may be able to go smoothly on the FX market if you've got an idea of trading in the normal stock markets.
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Profits are made on Forex if a one of a currency pair speculated rises in value against the other. specifically, the currency bought increases in value compared to the one sold.
Example
You purchase 10,000 euros at the EUR/USD exchange rate of 1.1800, then sold it two weeks later back into U.S. dollar at the exchange rate of 1.2500, you automatically earn a profit of $700.
An Exchange Rate is the ratio of one currency valued against the other in a currency pair.
How To Read A Forex Quote
Currencies on Forex are usually traded in pairs, or say quoted in pairs. For example GBP/USD, USD/JPY.
The reason this currencies are quoted in pairs is that a trader practically buys one currency and sells the other so, how do you know which one you are buying and which one you are selling? That brings us to the concept of base and quote currencies.
Base And Quote Currency
Currencies on Forex comes in pairs, one is usually the Base currency while the other is the Quote Currency. Whenever an individual is on an open spot, he is basically exchanging one currency for the other.
The Base Currency is usually the first currency on a currency pair while the second is the Quote Currency.
Here's an example, A GBP/USD pair has GBP as it's Base currency while USD is the Quote currency.
The Base currency is the reference element for the exchange rate of the currency pair. It always has a value of one.
Long Vs Short
First an individual determines if he needs to buy or sell, buying means you buy the Base Currency and sell the Quote Currency. You make profit when the base currency rise in value and then you sell it back at a higher price.
In trading terms, this is called “going long” or taking a “long position.” Just remember: long = buy.
You go short when you want to sell, this involves selling the Base currency in Exchange for the Quote Currency, you make profit when the base currency falls in value and then you would buy it back at a lower price.
Flat Vs Square
If an individual on the FX market has no open position, he is said to be flat or square. You can also call closing a position on your openings, squaring up.
The Bid, Ask and Spread
Earlier I published an article about Limit Orders and Stop Orders In Exchange, this has it similarities with the Bid, Ask and Spread on Forex
Since every currency comes in pairs, they are equally quoted with two prices; the Bid and Ask. Generally, the Bid is usually lesser than the Ask.
What is Bid?
Bid is a term associated to the price at which your broker is willing to buy the base currency in exchange for the quote currency.
What Is Ask?
This is just an opposite of Bid. The price at which your broker is willing to sell the base currency in Exchange for the Quote Currency.
What is Spread?
This is simply the difference between the Bid and the Ask Price.
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