Buying and Selling in Forex
Forex (foreign exchange) trading involves buying and selling currencies in pairs. When you buy a currency, you are simultaneously selling another currency.
Buying
When you buy a currency pair, you are buying the base currency and selling the quote currency.
For example, if you buy EUR/USD, you are buying Euros and selling US Dollars.
You expect the value of the base currency (EUR) to increase relative to the quote currency (USD).
Selling
When you sell a currency pair, you are selling the base currency and buying the quote currency.
For example, if you sell GBP/USD, you are selling British Pounds and buying US Dollars.
You expect the value of the base currency (GBP) to decrease relative to the quote currency (USD).
Process of Buying and Selling
1. Choose a currency pair: Identify the currencies you want to trade.
2. Open a trading account: Establish an account with a forex broker.
3. Fund your account: Deposit funds to cover your trading.
4. Place a trade: Enter an order to buy or sell the currency pair at a specific price.
5. Monitor the trade: Track the performance of your trade and make adjustments if necessary.
6. Close the trade: Sell the currency pair to take profit or minimize loss.
Key Elements
Bid price: The price at which you can buy a currency pair.
Ask price: The price at which you can sell a currency pair.
Spread: The difference between the bid and ask prices, which represents the broker’s commission.
Leverage: Using borrowed funds to amplify your trading potential, but also increasing your risk.
Stop-loss order: An order to automatically close a trade at a predetermined price to limit losses.