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How to Invest: Basics to Forex



Here's what you need to know to get started with Forex

Base currency:

The currency the buyer is using to make purchases.


Quote Currency:

The currency being purchased.

So for example, if a trader uses Swiss Francs to purchase Chinese Yuan. The base currency would be the Franc while the Yuan would be the quote currency.

8 Terms for FOREX trading

• Exchange Rate: The rate indicating how much of the quote currency you need to spend to buy the base currency. If you want to purchase euros using US dollars, you’ll see an exchange rate such as: USD/EUR=0.73, which means you’ll spend .73 euro for 1 US dollar.

• Long Position: Investors want to buy the base currency and sell the quote currency. For example you would want to sell the US dollar and then purchase the euro.

• Short Position: Investors want to buy the quote currency and sell the base. So you sell the euro to purchase the dollar.

• Bid Price: The price at which the broker is willing to buy a base currency in exchange for a quote currency. It is also the best price at which a seller is willing to sell their quote currency to the market.

• Ask/Offer Price: The price at which a broker will sell the base currency for a quote currency. In other words, it’s the best price market price available.

• The Spread: This is simply the difference between the bid price and the ask price. A lot of money gets made and lost along the road from one end of the spread to the next.

• OTC: The foreign exchange is not a centralized market for a majority of trading and there is sparse regulation across international borders. Thus trading is done via a dealer network, or “over-the-counter” instead of through a traditional centralized exchange.

• Main trading centers – The centralized exchanges are open five days per week, 24 hours per day. The main financial centers are cities like New York, London, Hong Kong, Tokyo, Singapore, Sydney, Frankfurt and Zurich. The multiple times zones, high activity and ever-changing markets results lead to high levels volatility and risk.

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