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Trading foreign currency is not difficult once you are familiar with trading techniques and winning strategies. Most beginner traders are enticed by the great profits they are most likely to make through trading forex and they jump onto the bandwagon without first preparing themselves through learning how to trade forex. The foreign currency trading jargon is what every beginner should learn first, before going any further into trading in the market.
How To Trade Forex: Terms to Learn in Order to Trade Forex
You must know what base currency is. This is the currency you are spending or getting rid of. The quote currency on the other hand is the currency you are buying. When you sell one currency, you simultaneously purchase another when trading in foreign currency. You must also know what is meant by the exchange rate. This rate tells you how much you must spend in your quote currency in order to buy the base currency. The rate is always quoted in pairs. An example is ZAR/USD (which is the South African Rand and the US Dollar currency pair).
A long position simply means buying the base currency and selling the quote currency. A short position on the other hand simply means buying the quote currency and selling the base currency. You must also know what is meant by the bid price and the ask price. The bid price refers to the price your broker is willing to buy the base currency in exchange for the quote currency. It is the best price at which you are willing to sell your quote currency on the forex market. The ask price on the other hand refers to the offer price, which is the price your broker will sell the base currency in exchange for the quote currency. It is the best price at which you are willing to buy currency from the market. It is important that you also know what a spread is. It is the difference between the bid price and the ask price.
What to Look Out For to Learn How to Trade Forex
You must know how to make predictions about the economy. If you believe a certain currency will weaken, you may want to sell in exchange for a currency backed by a strong economy. You must also look at a country’s trading position- if a country has many goods on demand that country is therefore most likely to export many goods to make money and this is a trading advantage for you as this will also boost the value of a country’s economy.