Forex Basics

by Warren Seah
forex basics

Currencies are traded against one another.

That is on the chart Eur/Usd, if you long the market, it mean you are selling Usd to buy Eur. Likewise if you are shorting Gbp/Usd, you are selling Gbp to buy Usd.

Base Currency and Quoted Currency

When trading Eur/Usd pair, Euro is the base currency and Usd is the quote currency. The base currency is always quoted in 1 against the quoted currency. The quote currency will have 2 prices for reference. That is the bid price and ask price.

Buy Trade

When you buy, you are getting the ask price. When you close your buy trade, you close at the bid price.

Sell Trade

When you short, you are getting the bid price. If you close your sell trade, you closed at the ask price.

Spreads

The difference between the bid price and the ask price is the spread. Brokers earn from the spread. In the traders’ perspectives, this is the trading expense you need to cope with.

Major Pairs

They are currency pairs that involve US dollar. Majors will trend more then other pairs.

Eur/Usd Gbp/Usd Usd/Jpy Usd/Chf

Commodity Pairs

These pairs are influenced by movement in the commodity markets.

Aud/Usd Usd/Cad Nzd/Usd

Cross Pairs

These pairs are non US related. They tend to stay in range more often and most breakout systems perform well in these currency pairs. Aud/Jpy and Aud/Chf are commonly use in carry trade due to their interest differential.

Eur/Jpy Gbp/Jpy Aud/Jpy Eur/Gbp Eur/Chf

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