Forex Trading Tutorial For Newbies: The Currency Tutorial

Forex Trading Tutorial for Newbies: The Currency Tutorial

This forex trading tutorial you’re about to receive here will give you the basic idea of how things works. However, we are reminding you that this tutorial is only scratching the surface. The Forex market is complex, fast-paced and requires serious further study if you wish to trade successfully.

Now let’s begin by looking at another fundamental unit involved in every trade: the ‘currency pair‘. Currency pairs are units of two currencies involved in a foreign exchange trade. For example, if you want to sell U.S. dollars to buy Euros, you would look at the exchange rate quoted for the EUR/USD currency pair. Or, if you wanted to sell Euros to buy U.S. dollars, you would look at the exchange rate quoted for the USD/EUR currency pair.

Now you know that there are two similar exchange rates when we are dealing with a currency pair. The correct way to interpret the exchange rate is look at the correct pair, in the correct order, based on the currency being purchased.

Our forex trading tutorial talks about exchange in terms of how much of the base currency you can purchase with your ‘quote’ currency. Your base currency is the currency you intend to buy, and the quote currency is the currency you intend to sell in exchange for the base. When quoting an exchange rate, your broker will list the base currency first, and the quote currency second. A quote pair of EUR/USD = 1.4444 means that 1 Euro costs $1.4444 in U.S. Dollars. Likewise, USD/EUR = 0.6830 would mean that 1 U.S Dollar costs 0.6830 Euro.

From the correct buy/sell ordered pair one can calculate the difference between the ‘bid price‘ (exchange rate) and the ‘ask price‘ (what the market makers want for the currency). This difference (between bid price and ask price) is known as ‘the spread‘. Forex traders are subject to spreads when opening or closing trades in the buying position.

Throughout our forex trading tutorial, this topic (exchange rate, bid and ask price, and the spread) will appear quite frequent; so study well and check back for their definitions before opening a foreign exchange stock account.