Pricing in the Forex market consists of the bid price and the ask price. Usually prices are in the brokers favor, as this is how he makes his money. The ask price will always be higher than the bid price, so when you trade on the Forex market, you end up buying high and selling higher.
If you want to purchase a currency pair, you will pay whatever the asking price is. For example, if you look at GBP/USD and you think that the pound will become stronger than the dollar, you would try to buy the pound at a lower rate and sell the dollar since you are predicting it will weaken as against the pound. The pound is considered as the "base currency" and will control the trade, which is called a long position.
The price that you sell at is called the bid price. Using the GBP/USD example, if you predict that the dollar will come back and eventually become stronger than the pound, you would take a short position and sell the pound and buy the dollar. The base currency will still control the direction of the trade.
When you are purchasing the cross currency, the one that is not controlling the trade, all of the signals are reversed in a short sale. The price of the currency pair will then decrease. As you sold the currency pair, you want the price to decrease and will only earn a profit if the price of the pair declined.
What you need to do is to calculate the number of pips that you would earn in a short trade in the same manner as in a long trade. You need not pay any attention to the purchase or sale price, but the crux is to calculate the difference between the higher and lower number that will enable you to make a gain.
The spread is the difference between the bid and the ask price. This difference is the amount that the broker takes as his commission. Although the commission may seem low, this is actually how he makes his money; a very high volume of trades with smaller commissions over time will give a larger profit than a few trades with large commissions.
Spreads are often competitive. Brokers frequently will offer spreads that are small in order to attract more customers and let them keep more profits from trades. The most commonly traded currency pairs, termed as "sticking with the majors," usually have spreads that are much smaller than others since the volume of activity makes up for the decreased brokers fees. - 14915
If you want to purchase a currency pair, you will pay whatever the asking price is. For example, if you look at GBP/USD and you think that the pound will become stronger than the dollar, you would try to buy the pound at a lower rate and sell the dollar since you are predicting it will weaken as against the pound. The pound is considered as the "base currency" and will control the trade, which is called a long position.
The price that you sell at is called the bid price. Using the GBP/USD example, if you predict that the dollar will come back and eventually become stronger than the pound, you would take a short position and sell the pound and buy the dollar. The base currency will still control the direction of the trade.
When you are purchasing the cross currency, the one that is not controlling the trade, all of the signals are reversed in a short sale. The price of the currency pair will then decrease. As you sold the currency pair, you want the price to decrease and will only earn a profit if the price of the pair declined.
What you need to do is to calculate the number of pips that you would earn in a short trade in the same manner as in a long trade. You need not pay any attention to the purchase or sale price, but the crux is to calculate the difference between the higher and lower number that will enable you to make a gain.
The spread is the difference between the bid and the ask price. This difference is the amount that the broker takes as his commission. Although the commission may seem low, this is actually how he makes his money; a very high volume of trades with smaller commissions over time will give a larger profit than a few trades with large commissions.
Spreads are often competitive. Brokers frequently will offer spreads that are small in order to attract more customers and let them keep more profits from trades. The most commonly traded currency pairs, termed as "sticking with the majors," usually have spreads that are much smaller than others since the volume of activity makes up for the decreased brokers fees. - 14915
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