Learning the currency market

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Learning the currency market

Post  ilearn2t on Sat Jan 26, 2013 10:59 pm

Hello Everyone

All trades that take place in the forex market involves the buying of one currency and the selling of its counterpart.

How brokers display their Forex rates:

We'll look at the close of yesterdays trading rates taken from the history data on the MT4 platform.

EUR/USD  1.3306/1.3308

The first currency listed (EUR) is called the base currency; the second currency (USD) is commonly known as the quote, or sometimes counter currency.

The sell (bid) price is first listed 1.3306 while the second listed is the buy (ask) price (1.3308), with a 2 point gap in the middle.

The points gap is commonly know as "spread" this represents the fee your broker charges for each trade placed through their brokerage firm. Spreads can vary significantly from broker to broker so it is very much in your interest to trade with the broker offering the best (lowest) spreads in order to minimize your trading costs.

The currency pair indicates how much of the quote currency is required to purchase one unit of the base currency. This example shows, EUR/USD  1.3306/1.3308, so you can sell 1.3306 US dollars for 1 Euro or buy 1.3308 US dollars for 1 Euro.

If the EUR/USD increases from 1.3306/1.3308 to 1.3307/1.3309 or more, the euro has increased in relative value, meaning either the "Dollar" buying strength has weakened or the Euro has strengthened, if the quote drops in value either the "Dollar" buying strength has strengthened or the Euro has weakened.

Good luck
ilearn2t
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