For all Forex currency pairs, there is a bid price – the price at which ADS Prime will BUY one currency from you in exchange for the other currency and an offer or “ask” price – the price at which ADS Prime will SELL to you in exchange for the other currency.
Typically, the first currency is called the “base” currency and the tradable “rate” shows the comparative value of the second displayed currency against the base currency. In other words, in the price shown below, EUR/USD 1.35690 means 1 euro is worth 1.35690 US Dollars.
Example of a Forex Trade
- An investor opens an ADS Prime account. He wants to speculate over the price of the US Dollar against the Canadian Dollar as he spent some time working in Canada and understands the outlook and prospects of the Canadian economy.
- If the investor expects that the US Dollar is going to rise against the Canadian Dollar he will “buy” or “go long” on the USD/CAD pair.
- He decides to open a position of $1,000,000 long on the USD/CAD pair.
- The market quotes USD/CAD at 1.34500. The investor buys USD at the ask price of 1.34500 against CAD.
- By making this trade, the investor effectively bought 1,345,000 Canadian Dollars by exchanging in his $1,000,000 since the exchange rate was 1.34500.
- He expected the Dollar to rise against the CAD and indeed it does, the currency rate to sell USD is now at 1.35500 so he decides to close his position.
- He “sells” back his $1,000,000 Dollars which now amount to 1,355,000 Canadian Dollars due to the current currency rate making a nice profit of 10,000 Canadian Dollars from his trade.
Ready to start trading?
Opening an account with ADS Securities is simple and secure. You have the option to open a live account via our secure client portal or try our FREE Demo Account.