Forex Basics
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Forex Basics
Understanding Forex Prices
In the Forex market, you’ll encounter two key prices: the bid price and the ask price. These prices favor the broker, as that's how they earn their commission.
The Ask Price
The ask price is what you pay to purchase a currency pair. For instance, if you believe the British pound (GBP) will strengthen against the U.S. dollar (USD), you’ll buy the GBP/USD pair. Here, you're buying the pound at a lower rate, hoping to sell it later at a higher price. This action is known as opening a long position.
The Bid Price
On the flip side, the bid price is what you receive if you wish to sell, or short, a currency pair. If you expect the U.S. dollar to strengthen instead, you sell the GBP/USD pair. In this case, you buy the dollar and sell the pound, hoping the currency pair's price will decrease. This is how you profit from shorting, as you want the base currency (GBP) to weaken.
Profit Calculation
Whether you’re in a long or short position, calculating your profit in pips is straightforward. Subtract the lower price from the higher one?"the difference is your gain.
Spread and Broker Commission
The ask price is always higher than the bid, resulting in a spread. This spread is the broker’s commission. Brokers earn by handling a large volume of trades with typically low commissions. Choosing a broker with a smaller spread means more profit for you.
Choosing Currency Pairs
Spreads are competitive among brokers, and popular currency pairs usually have smaller spreads. This makes trading major currency pairs advantageous, as it allows you to retain more of your earnings.
By understanding these basics, you can better navigate the Forex market and make informed trading decisions.
You can find the original non-AI version of this article here: Forex Basics.
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