Forex Market Makers
Fundamentals of Trading Forex Market: FX Terminology
Price Quotes: Base Currency / Quote Currency
All transactions are based in pairs, buying and selling of another. The first currency quoted is called the base currency, while the second date is called the quote currency. As an example, here is a typical price of a currency EUR / USD 1.5280
In this example, the base currency (EUR) U.S. dollar and the euro is the quote currency (USD) is the U.S. dollar.
So with this example (if purchased), the rate of 1.5280 means that you have to pay U.S. $ 1.5820 to buy $ 1 Euro. On the contrary, if you sell, you receive 1.5280 U.S. dollars for every dollar sold Euro.
Spread
This also called the bid / ask. This is the price difference between what a currency pair is bought and sold forÖor a difference between the bid and offer price.
The bid is the price at which the Forex market maker is willing to buy the base currency in exchange for currency. Moreover, the selling price is the price at which the market maker Forex is willing to sell the base currency in exchange for currency.
Remember that all operations through the simultaneous buying of one currency and the selling of another.
Spreads vary pairings pairings. This expansion is where the agent will make their money. Each time you make a trade, making the spread. It is that they do not charge commission ñ no need to.
According to the broker and matches, you will find ranges from as little as 1-3 pips – the smaller the spread, the better you will be.
For example, the agent may have a margin of 2 pips for EUR / USD relationship, which means the typical supply / budget request would be something like this: Bid: 1.5280 Ask: 1.5282
Using this example, if you were to buy, buy in 1.5282 and if you were to sell, sells at 1.5280
When you buy a pair, you have the expectation that the base currency will do better than the quote currency. For example, suppose that we have done our homework with technical and fundamental analysis and the feeling that the U.S. economy is heading towards a recession and the Euro Dollar is to gain value against the U.S. dollar. We see the quote: EUR / USD – Offer: 1.5280 Ask: 1.5282 We have confidence in our analysis so purchased (in 1.5282) and see the trade take place. We received the news that the U.S. Fed chairman has made some public statements that he's worried about the U.S. economy and could be directed towards a mild recession. We look again and the price is now: EUR / USD – Bid: 1.5300 Ask: 1. 5302 and decide that we will have our profits and sell our euros, are already being EUR 1.5300, which makes a profit of 18 pips on this trade.
This is an oversimplified example, but it should give an idea spreads and quotes.
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