Long-Short

The Forex market is traded in currency pairs, so when you trade Forex, you are long one currency and short the other at the same time. This is very important because it means you are exposed to both currencies. For example, if you buy EUR/USD, you are buying the euro and selling the dollar at the same time.

So, when trading Forex, you first need to decide whether to buy or sell.

If you want to buy, then you are actually thinking that the base currency will appreciate, which in trading terms is called "going long". Going long = buying.

If you want to sell, then you are actually thinking that the base currency will depreciate, which is called "short" in trading terms. Shorting = selling.

Spreads

All Forex quotes include two prices, the bid price and the ask price. The bid price is always a little higher than the ask price for traders.

The bid price is the level at which a trader is willing to buy the base currency and sell the quoted currency. This means that the bid price is the level at which you as a trader are willing to sell the base currency.

The ask price is the level at which the trader is willing to sell the base currency and buy the quoted currency. This means that the ask price is the level of the exchange rate at which you as a trader buy the base currency.

The smallest unit of exchange rate movement is the pip. The difference between the bid price and the ask price is usually called the spread.

Since there is no official exchange in the foreign exchange market, the bid and ask prices vary from broker to broker at any given time. When choosing a forex dealer, be sure to look at which offer is most favorable to you.

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