How to trade on Forex?

Transactions are performed through the trading terminal which shows the quotes of currency pairs. The trader assesses the market condition and decides on the purchase or sale of an asset. After that, the trader gives a command to open the requested position. A brokerage company by applying data from a liquidity provider gives its client the result on the requested position and the trader determines the price level at which the transaction will be closed.

As a result, a profit or loss is recorded on trader’s account. Before you start to participate in the bidding, you need to understand the key aspects of making trades in Forex. Each currency has its own encoding consisting of three Latin letters for example, the currency pair “British pound / US dollar” looks like the abbreviation GBP / USD.

The first indicates base currency. In the example above, it is the British pound (GBP). The second monetary unit in the pair is the quote currency (USD). Every financial instrument on Forex has two prices:

Ask price: The purchase price of the base currency (GBP) and sale of the quoted (USD).

Bid price: Cost of sale of the underlying asset and purchase of the quoted one.

The difference between the bid and ask prices is called the spread. The size of the transaction is determined in lots. One lot is equal to 100 thousand units of the base currency. Previously, only traders with significant capital could participate in such trades. However, with the advent of margin trading, trading became available to a wider audience. With margin trading the broker provides the service called leverage on the security (margin) of the trader’s deposit. If the amount of leverage is 1:30, this means that the trader can make a transaction in the amount of 30 times more the size of the deposit.