click here How Does Forex Works?
- Forex trading is the simultaneous buying of one currency and selling of another.
- These two currencies constitute the so-called “currency pair”.
- Each currency is represented by three letters and the currency is always in pairs.
- The first two letters represent the country name and the third letter represents the currency.
- Forex pairs are read in the opposite direction of mathematical proportions or ratios.
- Example : EUR/USD = 1.18000.
- The currency on the left of the slash (/) is called the base currency (Euro) and the currency on the right is called the quote currency (U.S. Dollar).
- This notation means that 1 unit of the base currency 1 Euro is equal to 1.18000 of U.S Dollars.
- Which mean you have to pay 1.18000 U.S Dollars to buy 1 Euro.
- If selling, the foreign exchange rate specified how much units of the quote currency you get for selling one unit of the base currency.
- In the example above, when you sold 1 euro, you will get $1.18000 in U.S. dollars.
When To Buy Currency?
- If traders think that the value of a particular base currency will increase, they will open buy positions.
When To Sell Currency?
- If traders think that the value of a particular base currency will decrease, they will open sell positions.