What you need to know before Trading FX


every day roughly four trillion dollars

changes hands on the foreign exchange

market that's a lot of trading but

before you jump in you need to

understand how things are done on Forex

first and foremost currencies on forex

are traded through pairs listed on the

left is the base currency on the right

is the quote currency in this case euros

and dollars then come two numbers the

bid price and the asset price these are

provided by a market maker or broker who

handles the trade the bid prices

represents how much of the quote

currency you would receive if you sold

one unit of the base currency the ask

price represents how much of the quote

currency is required to buy one unit of

the base currency the ask price tends to

be slightly higher than the bid price

which is why most brokers only display

the last two digits the difference

between the two numbers is called the

spread and that money generally goes to

the broker as a fee so in this case if

you sold one euro you'd give one point

for one one two US dollars and if you

bought one euro you'd pay one point for

one one one US dollars now one term

you'll hear a lot is pip a pip measures

the increase or decrease of a currencies

value one pip is equal to roughly point

zero zero zero one dollars depending on

the currency being traded another set of

terms is long position and short

position taking a long position means

that you've bought an amount of currency

taking a short position means you've

sold it now how do you close a trade in

forex first of all just because you

bought a certain amount of currency

doesn't mean your trade is closed in

order to close a trade or close a

position as it's called you need to buy

or sell an equal amount of the open

order thereby reducing the open position


for example if you bought a thousand

euros you are said to be long a thousand

euros in order to close that trade you

must then sell a thousand euros it's

only when you close a position that you

actually realise the gains or losses of

that trade and either gain or lose that

cash in your account positions that are

still open at the end of the business

day can be rolled over to the next day

in what's called a rollover swap where

the broker actually closes the position

and then opens an identical position the

next business day so those are the

basics next we're going to get you ready

to make your first trade on Forex