There are two different prices in the Forex market. The bid price and the ask price. The prices do not favor you but the broker. This is the way the broker makes his money so the prices are in his favor. The ask price is always higher than the bid price. Unlike the stock market, when you are trading on the Forex market, you generally buy high and sell low to take advantage of trending markets.
When entering into a trade for a currency pair, you will pay the ask price. For example, with the popularly traded GBP/USD, if you think the pound is going to rise in price against the dollar, you would take a long position or buy the pound and sell the dollar, which is going to decrease in value against the pound. In this instance, the pound controls the trade and is termed the base currency.
The bid price is the price of the currency pair when you wish to sell or go short. Using the GBP/USD example, if you think the dollar will rebound and go higher against the pound, you would essentially be buying the dollar and selling the pound. The pound is the base currency and determines 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.
Calculations of the number of pips you earn over a short trade are the same as in a long trade to determine your actual profit. It is best to ignore the purchase or sale price and just figure out the difference between the higher number and the lower number, which will give you your gain or loss.
The spread is the difference between the bid price and ask price. This is the amount the broker will take as his commission. The broker makes money on the large volume of trades and not by charging large commissions.
Spreads are often competitive. Brokers frequently will offer spreads that are small in order to attract more customers and let them keep more profits from trades. The most commonly traded currency pairs, termed as "sticking with the majors," usually have spreads that are much smaller than others since the volume of activity makes up for the decreased brokers fees. - 15224
When entering into a trade for a currency pair, you will pay the ask price. For example, with the popularly traded GBP/USD, if you think the pound is going to rise in price against the dollar, you would take a long position or buy the pound and sell the dollar, which is going to decrease in value against the pound. In this instance, the pound controls the trade and is termed the base currency.
The bid price is the price of the currency pair when you wish to sell or go short. Using the GBP/USD example, if you think the dollar will rebound and go higher against the pound, you would essentially be buying the dollar and selling the pound. The pound is the base currency and determines 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.
Calculations of the number of pips you earn over a short trade are the same as in a long trade to determine your actual profit. It is best to ignore the purchase or sale price and just figure out the difference between the higher number and the lower number, which will give you your gain or loss.
The spread is the difference between the bid price and ask price. This is the amount the broker will take as his commission. The broker makes money on the large volume of trades and not by charging large commissions.
Spreads are often competitive. Brokers frequently will offer spreads that are small in order to attract more customers and let them keep more profits from trades. The most commonly traded currency pairs, termed as "sticking with the majors," usually have spreads that are much smaller than others since the volume of activity makes up for the decreased brokers fees. - 15224
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