How To Trades FX?
Trading Currencies in Pairs
Trading of currencies is in pairs with the official abbreviation such as USD for the US Dollar and AUD for Australian Dollar. The ‘base currency’ stands for bid and the ‘quote currency’ also stands for the ask price.
Trading Opportunities are created by the differences in price
Changes in the value of different currencies enable forex trading to continue. We display different exchange rates for both the bid and offer (ask) prices for the currency pair. Spread indicates how your broker is generating most of his or her revenue, got from the difference between the bid and ask. Since spreads vary from one dealer to another, choose tight spreads thereby minimizing your trading costs, but maximizing profits.
Understanding the measure of Spread
In the forex trade, spread is called pips defined as the least movement up and down in currency prices.
Trading the bullish and bearish Market
Trading of forex involves buying one currency and selling another currency simultaneously such that you can speculate on the falling and rising of currency. ’Bullish to rise.’ market condition means that the market is growing or is about to increase while. ‘bearish’ market is when the market is falling or about to fall.
Placing your first Trade; Example; EUR against USD
First, as a basis for your strategy consider the likelihood of rising or falling of the currency that you wish to purchase.
Taking a buy position, believing that the EURO, which is the base currency, will rise against the USD, which is the quote currency.
If we assume that the bid price of EURUSD price is 1.3047 and ask price is 1.3049, then the spread is 1.3049-1.3047= 0.0002; two pips. When you are buying, your trade will be entered at 1.3049 ask price.
Upon closing your trade at the bid price of 1.3081 and ask price of 1.3083, your business realizes a profit of 34 pips. If each pip costs $1 then you have made a profit of USD 34.