For all FX pairs on our trading platform, there is a bid price – the price at which you can sell the pair – and an offer or “ask” price – the price at which you can buy the pair.
Typically, the first currency is called the “base” or “fixed” currency and the tradable price shows the comparative value of the second or “variable” currency against the base currency. In other words, in the price shown below, EUR/USD means 1 euro is worth 1.17198 US Dollars.
How does FX trading work?
To properly understand what is FX trading, first you’ll need to understand some basic principles. If you’ve ever been to a Bureau de Change, you’ve already traded foreign exchange. It means, simply, “exchanging” (buying or selling) one currency for another, for example, selling US Dollars to buy British Pounds or Euros.
FX trades always involve two currencies e.g. Euro and US dollar or EUR/USD, and this would be called a currency pair.
Buying and Selling Forex pairs
In FX trading, small movements can have a significant impact on the overall value of an open position. When trading FX, you will be looking to anticipate the absolute movement of a currency – in either direction – since you can either “buy” a currency or “sell” it against the other quoted currency.
When you are buying a currency pair you anticipate the first named currency price will go up, meaning that the first currency in the pair will strengthen against the second one and the price will rise. For example, you would want to “buy” or “go long” the EUR/USD pair when you anticipate that the Euro will strengthen against the US Dollar.
When you’re selling a currency pair you anticipate the price to go down which means that the first currency in the pair will weaken against the second one. This could also be viewed as the second one strengthening against the first one.
For example, you would want to “sell” or “go short” the GBP/USD pair if you anticipate the British Pound to weaken against the US Dollar or equally the US Dollar to strengthen against the Pound.
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