Preparations for Market Leaders Group
Forex Trading Basics
Key Forex trading terms
Let’s get familiar with the basics:We always trade Forex in pairs with each currency’s value being compared to another:The Base currency – the first currency (on the left)The Quote currency – the second currency (on the right)
By selling the base currency, we are buying the quote currency. When we buy a pair, we actually buy the base by selling the quote. In our example – buying 1 GBP In exchange for selling 1.4135 USD. When we sell a pair, we are doing the opposite.
When you see a currency pair quoted you’ll see two different prices listed:
The Ask price is the price the broker is asking me to pay to buy the base currency.
The Bid price is the price (in the quote currency) which Forex brokers will pay me if I want to sell the base currency.
The Exchange rate is the ratio between the values of the two currencies. Let’s look at another quote as an example:
Base Currency = EUR
Counter = USD
Bid price = 1.3272
Ask price = 1.3276
When selling Euros, 1 Euro = 1.3272 USD
When buying Euros, 1 Euro = 1.3276 USD
Spread = 1.3276 – 1.3272 = 0.0004
If we buy a pair it means that we sell the Quote currency in order to buy the Base currency. We do it when we believe that the value of the base currency will increase (relative to the Quote currency). If we sell a pair it means that we believe that the value of the Base currency will fall (relative to the Quote currency).
What you also need to know
Lot – the standard level of deposit per single trade. There are 3 main sizes:
Standard lots = 100,000 currency units
In a mini account a single pip is worth approximately $1
In a standard account a single pip is worth approximately $10
Short Position – A Sell action (expecting the currency to go down)