E-learning about forex

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E-learning about forexWednesday, 15 August 2007

Understanding Bid & Ask

A Bid is what someone is willing to pay for an asset. The Ask, or offer, is what someone is willing to accept to sell an asset. As a Forex trader, you can Buy at the Ask and Sell at the Bid.

Placing a Trade

Placing a trade in the Forex market is simple. The mechanics of a trade are virtually identical to those found in the markets you are trading now. A Forex trade is a trade in which one currency is valued against another.

Symbols to Trade

Forex Symbol Currency Pairs Terminology

EURUSD Euro / U. S. Dollar Euro

USDJPY U. S. Dollar / Japanese Yen Dollar-Yen

GBPUSD British Pound / U. S. Dollar Sterling

USDCHF U. S. Dollar / Swiss Franc Dollar-Swiss

USDCAD U. S. Dollar / Canadian Dollar Dollar-Canada

AUDUSD Australian Dollar / U. S. Dollar Aussie

EURGBP Euro / British Pound Euro-Sterling

EURJPY Euro / Japanese Yen Euro-Yen

EURCHF Euro / Swiss Franc Euro-Swiss

GBPJPY British Pound / Japanese Yen Sterling-Yen

The symbol for each Forex contract is based on the two currencies:

EURUSD = Euro Dollar vs. US Dollar.

Also, each Forex contract is a price for the first currency in the symbol name, quoted in the second currency in the symbol name. In the case of the Euro vs. US Dollar, where the exchange rate is approximately $1.30, it would take USD 1.30 to purchase 1.00 Euro. Each Forex contract covers a fixed number of units of the first symbol in the symbol name, usually 100,000.

Forex exchange rate prices move in fixed minimum price movements called pips. A pip is the minimum price move an exchange rate can make.

Closing out a Position

An open position is one that is live and ongoing. As long as the position is open, its value will fluctuate in accordance with the exchange rate in the market. Any profits and losses will exist on paper only and will be reflected in your margin account. To close out your position, you conduct an equal and opposite trade in the same currency pair.

For example, if you have bought (gone long) one lot of EURUSD (at the prevailing offer price) you can close out that position by subsequently selling one EURUSD lot (at the prevailing bid price).