Pricing in the Forex market consists of the bid price and the ask price. Usually prices are in the brokers favor, as this is how he makes his money. The ask price will always be higher than the bid price, so when you trade on the Forex market, you end up buying high and selling higher.
When entering into a trade for a currency pair, you will pay the ask price. For example, with the popularly traded GBP/USD, if you think the pound is going to rise in price against the dollar, you would take a long position or buy the pound and sell the dollar, which is going to decrease in value against the pound. In this instance, the pound controls the trade and is termed the base currency.
The price that you sell at is called the bid price. Using the GBP/USD example, if you predict that the dollar will come back and eventually become stronger than the pound, you would take a short position and sell the pound and buy the dollar. The base currency will still control the direction of the trade.
Whenever you are buying the cross currency, or the one which is not controlling the trade, the USD in the GBP/USD pair, all signals will reverse. The price of the currency pair will decrease, which you would then sell to make a profit.
You have to calculate the number of pips you earn in a short trade as the same as those you would earn in a long trade. Ignore the purchase or sale price and figure the difference between the higher number and the lower one to get your gain.
The spread is the difference between the bid price and ask price. This is the amount the broker will take as his commission. The broker makes money on the large volume of trades and not by charging large commissions.
Spreads are very competitive. The smaller the spread, the more money you get to keep. Brokers try to keep their spreads small to attract customers. Spreads among the more commonly traded currency pairs are usually smaller than others. Trading among the commonly traded pairs is what is known as Sticking with the majors.
When entering into a trade for a currency pair, you will pay the ask price. For example, with the popularly traded GBP/USD, if you think the pound is going to rise in price against the dollar, you would take a long position or buy the pound and sell the dollar, which is going to decrease in value against the pound. In this instance, the pound controls the trade and is termed the base currency.
The price that you sell at is called the bid price. Using the GBP/USD example, if you predict that the dollar will come back and eventually become stronger than the pound, you would take a short position and sell the pound and buy the dollar. The base currency will still control the direction of the trade.
Whenever you are buying the cross currency, or the one which is not controlling the trade, the USD in the GBP/USD pair, all signals will reverse. The price of the currency pair will decrease, which you would then sell to make a profit.
You have to calculate the number of pips you earn in a short trade as the same as those you would earn in a long trade. Ignore the purchase or sale price and figure the difference between the higher number and the lower one to get your gain.
The spread is the difference between the bid price and ask price. This is the amount the broker will take as his commission. The broker makes money on the large volume of trades and not by charging large commissions.
Spreads are very competitive. The smaller the spread, the more money you get to keep. Brokers try to keep their spreads small to attract customers. Spreads among the more commonly traded currency pairs are usually smaller than others. Trading among the commonly traded pairs is what is known as Sticking with the majors.
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