Are you interested in currency trading on the foreign exchange? The concepts behind currency trading are simple enough on paper, but there are layers of complexity which you’ll discover once you learn more about the market.
This currency trading report will fill you in on the basics; but it’s important to remember that this report covers just that: the basics. There is a lot to learn about the Forex market, far more than there’s room to cover here. If you want to gain the kind of in-depth knowledge that lets you make consistently profitable trades, you’ll need to pursue the subject further.
Now that you’ve read the disclaimer, let’s start with the basic unit of Forex trading: the currency pair.
What is a currency pair?
A currency pair is simply two currencies used in a foreign currency exchange transaction. Suppose that you want to sell US dollars and buy Swiss Francs. You’ll want to find the exchange rate listed for the currency pair CHF/USD. If you wanted to do the reverse, you’d look for the quoted exchange rate for USD/CHF instead.
Are you wondering what the difference is here? The order the pair is listed in makes the difference. The reasons that currency pairs are listed this way (and the reason they are the basic unit of exchanges on the Forex market) are these:
1- It’s much easier to determine how an exchange may play out when you think of it in terms of how much of the base currency (the currency you’d like to purchase) your “quote” currency (the currency you’d like to sell) can buy.
2- The order brokers list the exchange rates of currency pairs is base currency first, followed by the quote currency.
A quote followed by a currency pair like EUR/US= 1.4436 tells you the cost of one Euro as expressed in US dollars; in this case $1.4436.
When looking at currency pairs, you’ll also want to look for the difference between the exchange rate, also known as the “bid price” and the “asking price” or what the market is demanding for a given currency.
This difference is known as the “spread”. Forex traders have to pay these spreads whenever they open or close trades as a buyer. For example:
Open buy – spread
Close sell – no spread
Open sell – no spread
Close buy – spread
Suppose that you want to buy the EUR/USD currency pair. Let’s say that the bid price is 1.4436 and the ask price is 1.4440; this means you’ll have to pay the spread (.0004) to make this trade.
These are the fundamentals of currency trading on the Forex market, but there is much more to know in order to make profitable trades. You’ll need to learn to determine the actual value represented by fluctuations in exchange rates in basis points, or “pips” as they are called by Forex traders and brokers.
We’re not able to cover pips in this basic currency trading report, but this is an area you’ll want to learn more about before you begin making any serious investments in the foreign exchange market.
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