The Basics of Forex Trading

Most of the newbie investors who express interest to trade on the forex market often get discouraged by their inability to quickly grasp the basic terminologies used in forex trading. If you belong to this group, then this post is specifically written for you. Below, you will find a quick and simple guide on forex terminologies that you will find useful in your bid to enter the forex market.

  • Base currency. This is the currency of your current trading account and is therefore the currency that you want to spend and “convert” into another currency. If you have an account with an online brokerage that uses US Dollars as its currency, this becomes your base currency.
  • Quote currency. This is the current that you want to purchase using the base currency. Say you want to purchase Euros using US dollars from an online brokerage account; the US dollar becomes your base currency while the euro is your quote currency.
  • Exchange rate. The exchange rate is the value of one currency with respect to another, often expressed as a ratio of both. Suppose you want to work with the USD/EUR currency pair; the exchange rate would look like this: USD/EUR = 1.3158 which means that you need to spend $1.3158 to buy 1 EUR. Conversely, if your base currency is the EUR going into the dollar, the exchange rate is simply the inverse of the USD/EUR. In this case, it becomes the EUR/USD and the exchange rate is 0.760.
  • Long position. This is a description of a transaction where you are buying the base currency and selling the quote currency. With the same USD/EUR example, a long position means you want to buy back US dollars using Euros.
  • Short position. The inverse of the long position; here, you want to buy the quote currency and sell the base currency. From the same example, a short position means you want to sell US dollars and buy Euros.
  • Bid price. This is the price where your broker is willing to buy the base currency in exchange for the quote currency. The bid price isn’t necessarily equal to the prevailing spot price but can be very close. The bid price is the best price at which you are willing to sell the quote currency back into the market.
  • Ask price. This is the reverse of the bid price; it refers to the price at which your broker will sell the base currency in exchange for the quote currency.
  • Spread. This refers to the difference in the bid price and the ask price and is often a determinant of your profit out of the transaction.

If you want to succeed in forex trading, master these terminologies so you know how to converse and make transactions with your broker and with other forex traders.

Comments: 9

  1. Tracie May 23, 2013 at 11:17 am

    I must consult with foreign traders.

  2. Luann June 19, 2013 at 3:02 pm

    I have always aspired to enter into the foreign exchange market and among individuals auto pilot programs. A number of my buddies are earning a lot of money running these programs during the night. How can i discover more information?

  3. Kacy July 11, 2013 at 2:29 pm

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  4. Joe July 19, 2013 at 2:00 pm

    Hello, so i’ve been attempting to figure some methods I’m able to start generating income online and that i have sought out some time and Yes, it takes work only one factor i had been thinking about was something I discovered known as foreign exchange buying and selling, however haven’t been capable of finding a obvious guide on where you’ll get began and just what sites are legit, help Among the finest a stable earnings online , not a lot of money or anything

  5. Judith August 7, 2013 at 2:18 pm

    Really certainly one of my buddies had trained me how you can do stock buying and selling adn i’ve forgotten and im looking for any article or tutorial in regards to this leverage thingie adn didnt find yet .

    SO can anybody please show me what is this using ration and just what this means and so why do i see different brokers advertising different leverage ratios ?

  6. Floyd September 6, 2013 at 1:12 pm

    I simply attended a seminar on Foreign exchange buying and selling yesterday. I have downloaded a demo form of AVA Forex and Im fighting to obtain the most from it. What is the more simpler version available from another company which will also operate on my Mac because AVA Forex only operates on home windows.

  7. Patricia October 12, 2013 at 1:27 pm

    you accustomed to have the ability to work a summer time and purchase college one member of the family needed to work and may purchase a how hold. there is found a good example a man in the modern dollars who had been a supervisor of the auto parts store a very long time ago made 150k in the modern dollars and that he had a typical earnings. however since there exists a debt based currency it’s elevated the costs of all things causing us to be slaves towards the banks.

  8. Wes October 16, 2013 at 1:19 pm

    Supplying financial loans to the government authorities at compound interest that may never, be compensated. Drawing in the insightful nations and individuals for his or her own massive profit and control.

    This greatly problematic system could be changed with value based foreign currencies minted directly by government possessed mints.The potential obsolete debt based currency product is falling apart fast.

    Forget about relief. Forget about body fat cat banking oligarchs tugging strings of presidency.. Phase it after which kill it permanently.

    “I’m a most unhappy guy. I’ve unknowingly destroyed my country. An excellent industrial nation has become controlled by its system of credit.We’re no more a government by free opinion, no more a government by conviction and also the election from the majority, but a government through the opinion and discomfort of the select few of dominant males.” — Woodrow Wilson 1919

    http://whatreallyhappened.com/WRHARTICLES/slavetobanks.php

  9. Danette November 15, 2013 at 3:21 pm

    I discovered a website that spoken about foreign exchange buying and selling to earn money & it required me to some site that sells an automatic foreign exchange trader, skeptical I researched it & it got good reviews. But when I actually do purchase this foreign exchange buying and selling system what else must i do in order to begin to make money? Must i open a merchant account? Just what must i do? I am brand-new for this. (all critique & unrelated solutions is going to be overlooked v_v)

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