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.
Whenever you are buying the cross currency, or the one which is not controlling the trade, the USD in the GBP/USD pair, all signals will reverse. The price of the currency pair will decrease, which you would then sell to make a profit.
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.
Ask prices always exceed bid prices. This difference in price is called a spread. This is what the broker will earn as his commission. Brokers make their money based on the volume of trades accomplished and not through individual large commissions.
Spreads can be quite competitively priced. When the spread is small, the trader will have more profit. Keeping the spread smaller helps the brokers to attract more traders. Spreads are usually tiny among the widely traded currency pairs, also referred to the majors.
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.
Whenever you are buying the cross currency, or the one which is not controlling the trade, the USD in the GBP/USD pair, all signals will reverse. The price of the currency pair will decrease, which you would then sell to make a profit.
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.
Ask prices always exceed bid prices. This difference in price is called a spread. This is what the broker will earn as his commission. Brokers make their money based on the volume of trades accomplished and not through individual large commissions.
Spreads can be quite competitively priced. When the spread is small, the trader will have more profit. Keeping the spread smaller helps the brokers to attract more traders. Spreads are usually tiny among the widely traded currency pairs, also referred to the majors.
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