Placing a trade in the foreign exchange market is simple: The object of forex trading is to exchange one currency for another in the expectation that the price will change. More specifically, that the currency you bought will increase in value compared to the one you sold. An exchange rate is simply the ratio of one currency valued against another currency. The reason they are quoted in pairs is because, in every foreign exchange transaction, you are simultaneously buying one currency and selling another.
When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy one unit of the base currency. In the example above, you have to pay 1.
When selling, the exchange rate tells you how many units of the quote currency you get for selling one unit of the base currency. If you want to buy which actually means buy the base currency and sell the quote currency , you want the base currency to rise in value and then you would sell it back at a higher price.
If you want to sell which actually means sell the base currency and buy the quote currency , you want the base currency to fall in value and then you would buy it back at a lower price. All forex quotes are quoted with two prices: For the most part, the bid is lower than the ask price.
The bid is the price at which your broker is willing to buy the base currency in exchange for the quote currency. This means the bid is the best available price at which you the trader will sell to the market. The ask is the price at which your broker will sell the base currency in exchange for the quote currency. This means the ask price is the best available price at which you will buy from the market. Another word for ask is the offer price.
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