Forex Basics

No matter what field you study, view you must always begin with the basics. If you cannot understand the basics, then it will be nearly impossible to understand the more advanced material. Two things you should learn about first are how to read a Forex quote and Forex orders.

How to Read a Forex Quote

A Forex quote will always consist of two different currencies—the base currency and the quote currency. The second currency listed will always be the base currency, while the first one is the quote currency. If the quote reads EUR/USD 1.36, this means that USD is the base currency and the Euro is worth 1.36 U.S. Dollars.

On the quote you will also find the bid price and asking price. The bid price, the second number showing up, is the price you will acquire if you place an order to go long on a currency pair. On the other hand, the first price showing up is the asking price, which is the price that your order will be filled if you sell or go short on a currency pair.

The difference between the bid price and asking price is known as the spread, which is how foreign exchange currency brokers make their commission on your trades. For example, if you place a long order, you will receive the bidding price. Once you close that order, you acquire the asking price and must hand over the difference between the bid price and asking price to your broker.

Forex Orders

There are several different types of orders in foreign exchange currency trading that are responsible for how you enter and exit the market, while controlling your trades.

Market orders are administered live on the market at the current price and can be used to open or close a trade.

Limit orders are usually used to exit the market with profit. In the event that you are going long, the limit order will be above the market price. However, if you are going short, the limit order will be below the market price. Basically, once the market price reaches the limit order, the trade is closed and the profit will be transferred to your bank account.

Stop orders or stop loss orders are used to close a trade. True to their name, they are used to limit the amount of loss induced your trade by closing the trade at a certain level of loss.

Entry orders are used to enter the market at a specified price. For example, if you predict that the market will break through a price that it has been touching, the entry order allows you to enter the market the second the price crosses over.

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