About Forex Basics

What are the Forex Basics

Forex Market Prices

Like the stock market in the Forex market there are two different prices on the currency trading charts for the Forex market.  There is a bid price and the ask price that creates a Forex arbitrage.  The Forex arbitrage prices do not favor you but the foreign exchange broker.  This is the way the foreign exchange broker makes his money so the prices are in his favor. The ask price is always higher than the bid price.  This is a little different than the stock market, when you are trading on the Forex market, you will generally buy high and sell low to take advantage of trending markets.

Foreign Currency Trading Example

In the foreign currency trading example say you want to purchase a currency pair, you always have to pay the ask price.  By using the example of the GBP/USD you believe the pound is going to strengthen against the dollar. You would purchasing the pound at a lower rate and be selling the dollar, which is going to weaken.  The GBP pound will be the base currency and will control the trade.  This is what is called a long position.

The Base Currency Determines the Trade

The currency pair price is the bid price and is used to sell or go short. In our example GBP/USA the speculation is the dollar rebounds against the pound. So you would buy the dollars and sell the pounds. The base currency is the pound and determines the direction of the trade.

Part 2 The Signals are Reversed