Your trade will always involve two different currencies such as the US dollar and the British pound or the Us dollar and the European euro but it could also be the Chinese Yuan Renminbi and the Swiss franc. The possibilities are endless but unless you have specific knowledge of that country, it is better to stick to the main currencies, which is where most of the trading goes on. The first is the currency you buy and the second is the currency you are selling which gives a couple of pieces of important trading jargon, namely, a long position and a short position.
The long position is taken when a currency is bought with the belief that its value will rise so when you sell, you will make a profit.
The opposite is when you sell a currency, which is known as the short position, which is done because you believe that the value is going to fall and so you will be able to buy it back at a profit.
Whichever way around you trade, will have the same two terms, that of an open position and a closed position. This means at the beginning of your trade you have an open position, whether it is long or short and at the end of your trade you will have a closed position. So your open position will be when you decide to buy and will be closed when you decide to sell when you go long. Your position will be open when you sell currency and become closed when you decide to buy in a short position.
When you make your trade it will usually be for a number of days or weeks or even longer, but there are what is known as day trades where you will buy and sell (open and close your position) on the same day.
The Forex currency trading market uses the same codes for all the worlds’ currencies no matter where they are traded and always in the same position so that the currency quoted first is the base and the one second is the quote currency, also known as the counter currency.
Some examples are USD = US dollars, GBP = British pounds, EUR = European Euros, CHF = Swiss francs, CNY = Chinese Yuan Renminbi, AUD = Australian dollars and so on.
After the currencies will be two different figures which represent the spread ( where the broker makes his money) the first is the sell price and the second is the buy price. You may also see the term 'ask' price and 'bid' price.
The base currency is always a whole unit, normally single and the counter currency is quoted to 4 decimal places.
Let's show an example of US dollars and European Euros:-
USD/EUR= 0.68010 0.68014
This means that it will cost 0.68010 Euros to buy one US dollar, however this means that the USD/EUR trade will be sold at 0.68010 and the USD/EUR trade will be bought at 0.68014. You will notice that the last decimal place has a difference of 4 which is the spread. This can vary between 0 and 5 and they are usually called pips. So this trade would have a spread of 4 pips.
When you are beginning to trade Forex online, this will seem like a foreign language but it is a universal language of the world Forex market. As you complete more online Forex trades, so it will become familiar and easy to use and understand.
