The most popular pair traded is the Euro vs. the
American Dollar, or EURUSD. The currency on the left is called the base
currency, and is the one we wish to buy or sell; the one on the right is the
secondary currency, and is the one we use to make the transaction. Each pair
has two prices – the price for selling the base currency (bid) and a price for
buying it (ask).
The difference between them is called a spread, and represents
the amount brokers charge to open the position. The more a currency is traded,
i.e. high volatility, its spreads will be narrower. The rarer the pair is, the
wider the spreads will be.
Usually a quote will be presented with four
numbers after the dot, for instance 1.2356. In the case of EURUSD it means for
every Euro the trader wishes to buy he will have to invest 1.2356 US dollars.
Any change in the currency value will usually be seen on the fourth figure
after the dot, mainly known as a pip. The spreads, gains and losses will
usually be presented in pips.
Some other terms of the online forex trading world
are Going long and Going short, which stand respectively for ‘buying’ and
‘selling’. A trader who speculates the market will rise is called a ‘Bullish
Trader’, while on the other side stands the ‘Bearish Trader’, who is more on
the defensive side. In accordance, the terms ‘Bull Market’ and ‘Bear Market’
are used to describe the way the market goes.
A bull market is on the rise, and a bear market is
usually decreasing. Experienced traders will decide their strategy depending on
the market trends, and will make sure to follow all relevant events so they can
precede the changes in the market and gain profit.
In the past, every trader called his broker and
instructed him on actions to be made. Today the trades are done directly by the
client on a software, called a trading platform. Many of the platforms are
available for computer, internet and mobile. Every trader has his own strategy,
and he should find the platform that will enable him to perform it in the best
way possible, i.e. that he will feel most comfortable in.
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