Trade mode in the foreign exchange market is simple: trade mechanisms are very similar to those found in other markets (such as the stock market).
The goal of forex trading is to exchange one currency in another in expectation that the price will change, so that the currency you bought will increase in value compared to the one you want to sell.
The exchange rate is simply the ratio of one currency to another. For example, the USD / CHF exchange rate indicates how many dollars you can buy how many Swiss francs.
How to read the currency exchange rate in Forex
The following is an example of the foreign exchange rate of the pound sterling against the dollar
It is known that the first currency listed to the left of the slash (“/”) is the base currency (in this example, the pound), while the second on the right is called the opposite currency (in this example, the US dollar).
When purchasing in the above example, you should pay 1.51258 US dollars to buy one pound.
When you sell in the above example, you will receive $ 1.51258 when selling one pound.
Long (Buy) / Short (Sell)
First, you must determine whether you want to buy or sell.
If you want to buy (which means actually buying the base currency and selling the corresponding currency), you want the base currency to go up in value and you will resell them at a higher price. This is called “buy” or take “long position.” Just remember: long = buy.
If you want to sell (which means actually selling the base currency and buying the counterparty currency), you want the base currency to fall in value and then buy it at a lower price. This is called “selling” or taking a “short position”. Just remember: short = sell.
Bid / Ask
All currency rates depend on supply and demand. Bid is the lowest price and Ask is the highest price.
The bid is the price at which your broker is willing to buy the base currency against the corresponding currency. This means that it is the best price to sell to the market.
The ask is the price at which your broker will sell the base currency against the corresponding currency. This means that it is the best price to buy from the market.
The difference between the bid price and the asking price is known as spread.