Congratulations on taking the next step in learning about Forex trading markets and how to make money trading global currencies. The basic concept and principals of Forex are pretty simple. It gets a bit more complex as you go along, but stay with us and soon you'll be buying and selling like the pros.
The road to charting trends and understanding technical analysis or even developing your own trading strategy starts with some further understanding of the process. So, let's start with understanding how to read Forex language and quotes.
Most traders focus on "The Majors", which are the world's most liquid currency pairs. Over 85% of Forex trading across the world every day is done in the US Dollar, the Canadian Dollar, British Pound, Euro, Japanese Yen, Swiss Franc and the Australian Dollar.
When reading a Forex quote, there are two things to remember. Currencies are traded in pairs, so quotes always appear as two numbers The first currency listed is the base currency. In most cases, the US Dollar is used as the base to which all others are compared. The value of the base is always one. When the second number goes up, that means that the US Dollar has strengthened and the other currency has lost value. To clarify, a rising quote indicates that the US Dollar can buy more, or is worth more, than the other currency.
Now the US Dollar is used as a standard in Forex trading, however, there are some exceptions. When a different currency is used as the base in a quote, these are referred to as cross currencies. Those are British pounds(GBP) the Australian dollar (AUD) and the Euro (EUR). When these are paired, the quote is based on the first currency. A rising quote indicates that the other currency in the pair is strengthening which means the US Dollar is weakening.
You may have experience with the stock market and may be familiar with the process of the "bid" and the "ask". Again, because trading is done is pairs, a Forex quote has two sides, and these are the "bid" and the "ask", which are separated by the "spread". The bid price is for selling your base and the ask price is for buying your base currency. The spread is, obviously, the difference in the amount between the bid and the ask. This is the cost of trading. In Forex trading, the spreads are narrower that those in other markets so trading on small price movements can be cost effective.
If this information intrigues you, there are many Forex websites which can help you get started in the fascinating world of foreign exchange. Education is the key, so keep reading and researching and soon you'll be on your way to making some serious money.
