The 3 Major Concepts In The Forex Trade
Foreign exchange market, in short, called the Forex or currency market, is a venture for earning profit through currency differences or fluctuations. This market is considered to be the fast-moving, on-going market as currency forms a basis for our living. It is impossible to achieve anything without money in this modern era. The primary objective of Forex trading is to buy one currency for the other with anticipation of a change in price in future.
To become a foreign exchange trader, one must understand the 3 main concepts used in foreign exchange platform. The trading mechanism of Forex is as same as the trading in stock exchanges. If you are a trader in other markets, trading in Forex is easy to understand. Let us get into the three simple trading concepts in Forex trade.
1) Forex Quote: In the Forex trading platform, the currencies are always mentioned in pairs i.e. in relation to other currencies. As the exchange rate is the ratio of one currency to the other, there must be a quote of two currencies. Moreover, in Forex trade, you buy one currency by selling the other. Thus, the currencies are quoted in combinations. For instance: USD/GBP, which means the exchange rate between the United States Dollars to Great Britain Pound. In this example, the first listed currency i.e. USD is called the “base currency” and the second listed currency next to slash is called as the counter currency or quote currency which is GBP. This tells the trader how much he/she has to pay unit of quote currency to get one unit of base currency.
2) Long/short: Long and short in Forex is all about buying and selling. A trader would proceed to buy the base currency if he estimates that the price would rise in future. He/she would then sell them when the price reaches the highest value. So taking a long position and selling the currency when the price is at high value is called “long”. Long implies buying. While “short” implies selling. Meaning, a trader sells the base currency when he/she expects the price of the currency to fall.
3) Prices: If you are following trading, you would have come across the term “bid, ask and spread prices”. Let us learn the underlying meaning of these terms. A Bid price is a price at which you sell the base currency in the market in exchange for quote currency. An ask price or an offer price is a price at which you buy the base currency from the market. The difference between the price you buy and sell the currency is called as the spread.
Trading has become a simple, easy and comfortable mode of earning money pursuant to development of the internet and the technology. Traders now rely entirely on the suggestions and the report generated by the trading bots while executing a trade. Read more about the top rated trading bots and its distinctive features available in the market today.