When trading on Forex, someone is buying one currency in the pair, while another individual is selling the other. There are two prices in the transaction – a bid and ask that refer to a two-way price quotation. Learn more about the bid and ask as well as other Forex basics below.
How transactions on Forex made
Any currency on Forex is denoted as a three-letter code. For example, the pair of British Pound/US Dollar is shown as GBPUSD. The currency on the left is called the base (in this case it is GBP), and the currency on the right is the quote currency (in this case USD).
Since any asset can be sold or bought, there are two prices:
- The bid is the price of the offer. According to it, the seller is ready to sell the base currency (in this case GBP) and purchase the quoted currency (USD).
- Ask is the price of demand. According to it, the buyer is ready to purchase the base currency (GBP) and sell the quoted currency (USD).
Spread is the difference between the bid and ask. This is the earnings of a brokerage company, a commission without which trading is impossible. The spread is paid once – at the time of opening the transaction.
The volume of any transaction is measured in lots. The standard is 100,000 units of the base currency. Before, private individuals did not have the opportunity to trade on Forex since not everyone had such a sum of money. Now, thanks to the leverage, any participant can engage in trading. It is this circumstance that made Forex so popular.
The leverage is provided by the broker under the security deposit (margin) on the trader’s deposit. Hence the name – margin trading. For example, the leverage of 1:100 implies that a deal on Forex can be made with an amount that is 100 times less than the amount of the deal. A special platform, a trading terminal, allows implementing trading operations. The broker provides it for free. On the site, you can choose and download the most acceptable option for yourself. Find out more about it by reading information online.