There are two different prices in the Forex market. The bid price and the ask price. The prices do not favor you but the broker. This is the way the broker makes his money so the prices are in his favor. The ask price is always higher than the bid price. Unlike the stock market, when you are trading on the Forex market, you generally buy high and sell low to take advantage of trending markets.
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 bid price is the price of the currency pair when you wish to sell or go short. Using the GBP/USD example, if you think the dollar will rebound and go higher against the pound, you would essentially be buying the dollar and selling the pound. The pound is the base currency and determines the direction of the trade.
At the time of buying the cross currency or USD in the GBP/USD pair, the signals are reversed. This will result in reduction of the currency pair price. Because you are a seller, your interest is in a decrease in the price of the currency pair you sold, so that you are able to make a profit when you buy them back.
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. - 16003
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 bid price is the price of the currency pair when you wish to sell or go short. Using the GBP/USD example, if you think the dollar will rebound and go higher against the pound, you would essentially be buying the dollar and selling the pound. The pound is the base currency and determines the direction of the trade.
At the time of buying the cross currency or USD in the GBP/USD pair, the signals are reversed. This will result in reduction of the currency pair price. Because you are a seller, your interest is in a decrease in the price of the currency pair you sold, so that you are able to make a profit when you buy them back.
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. - 16003
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