Forex trading is always done with currency pairs and at ADSS, you can trade on over 60 different ones. The first currency listed is the base currency, while the second is the quote currency. Then you have to decide whether to buy and “go long” or sell and “go short”, depending on whether you expect currencies to increase or decrease in value, based on market factors, economic events, news and your trading strategy.
The two choices and when you would do them are:
- Buy: When you think the base currency will strengthen in value or the quote currency will weaken against it, profits will rise as the exchange price increases.
- Sell: When you expect the base currency will weaken or the quote currency will strengthen against the base, profits will rise with every point the exchange price falls.
WHAT ARE PIPS, SPREAD, MARGIN AND STOP LOSSES?
There are a few more important terms to understand when trading forex.
- Pips: When a currency price is displayed, the digits after the decimal point are the “price interest points”. These measure the change in the exchange rate for currency pairs.
- Spread: Currency pairs have two prices, the sell or “bid” price and buy or “offer” price. The spread is the difference between them and the cost of the trade.
- Margin or leverage: You only need to hold a small proportion of the amount required to open a forex trade. The percentage is decided by the leverage or margin settings agreed upon when opening an account, with leverage up to 500:1 available at ADSS.
- Stop Losses/Limit Orders: Protect forex trades with a stop loss, that closes out trades at a set price worse than the current market level to minimise losses. Limit orders lock in prices by closing out trades when they reach a set level better than the current market.