Understand the Forex Markets

By taking the time to learn about things like currency pairs, the spread and leverage - you could save yourself a lot of stress and money in the long run. For this reason, in the first section of our forex trading tips page, we've listed some of the most important things you should understand before you take the plunge.

Currency Pairs

Each currency pair is made up of 2 different currencies. Therefore, the value of each pair is based on the exchange rate of the two currencies. Let's use the EUR / USD as an example. In this currency pair, EUR is the base currency and USD is the quote currency. This is the case regardless of the currency used.

In other words, the base currency is always quoted first and the second currency is quoted second. Most importantly, both the first and second currencies can weaken or strengthen, so the exchange rate is constantly changing.

If the base currency becomes stronger against the quote currency, the currency pair value would increase. On the other hand, if the base currency becomes weaker, the currency pair value will fall.

Forex Market Orders

Orders allow you to enter or exit a trade you are interested in. These orders fall into two categories: Buy orders and Sell orders. Simply put, a buy order means that you believe the currency pair will increase in value, and a sell order means the opposite.

For example:

•     Suppose your currency pair is EUR / USD and the value of the EUR is 1.1334 
•     You may suspect that the EUR will rise against the USD. In this case, you can place a buy order with your broker.

Then you need to determine whether you want to use a market order or a limit order in https://exness-sg.com/metatrader4/. By placing a market order, you are essentially placing an order to buy or sell at the next available price.

Now keep in mind that the price for the currency pair is probably not 1.1334, as the price changes from second to second. As such, a market order will likely achieve a price just above or below 1.1334. On the other hand, when you place a limit order, you must specify the exact price at which you will enter the market. However, you will have to wait until the price is taken by another seller before the order goes online.

Spread

In short, every Forex trade consists of two separate prices - a buy price and a sell price. The difference between the two prices is called the spread. It is important to have a basic understanding of spreads, as this is an invaluable part of your Forex trading journey.

•     Let's say the buy price is 1.1335 and the sell price is 1.1330.
•     1.1334 (buy) - 1.1330 (sell) = 0.0004 (pips).
•     In this case spread is 0.0004, which is the difference between the buying and selling price.

During a trading day, spreads fluctuate. This spread is influenced by various factors such as liquidity (how quickly an asset can be bought or sold) and volatility (the variable movement of currency trading movements).

Major currency pairs are traded in much higher volumes than major or exotic currencies. Simply put, the more in demand the currency, the lower the trading costs. This is because the spread is smaller (tighter).

Major or more exotic currency pairs tend to have a wider spread than majors due to the lower trading volume. As such always try to be aware of the size of the spread as this can lead to higher trading costs.