Forex for Newbies – The Ins and Outs of Buying and Selling Currency

Posted by on Feb 27th, 2011 | no comments home title

Buying and selling currencies, sound simply? It is not! As a forex newbie, you need to understand this fact that currency trading is a full fledged subject plus an art. There are millions of currency traders spread all over the world who make a successful living trading these currencies. So, let’s discuss the ins and outs of buying and selling currencies.

You can not buy and sell a currency singly. You will have to trade currencies in pairs. For example, you want to buy GBP. Suppose, you have USD. So, what you will do is sell USD and buy GBP meaning you will be buying the GBPUSD pair.

Now, there are six currency pairs that get traded the most these are EURUSD, USDGBP. USDJPY, USDAUD, USDCAD, USDCHF. The first currency in the pair is known as the base currency and the second currency is known as the counter currency. When you buy or sell a currency pair, you have to pay a bid/ask spread. For example, suppose, you are interested in trading EURUSD. If you buy EURUSD, you might have to pay 1.3423 rate and if you sell EURUSD, you may have to pay 1.3421 rate. This difference of 2 pips is the spread.

What is a pip? Pip is the smallest price change in the exchange rate. As you might have observed above that the exchange rate is usually expressed in terms of four decimal places, this smallest change is equal to the change in the fourth decimal place in the exchange rate. Pip is equal to 1/100th of a percent or one basis point.

Whatever, currency trading is all about making pips. The more pips you make, the more money you will be making. For making pips, you need to learn technical analysis. This is the subject that tells you when is the best time to buy a currency and when is the best time to sell currencies. This subject is based on the study of price charts.

You study the past price action in order to predict the future price action. Now, if you are really interested in learning currency trading, first educate yourself on this subject. Most of the info like what is a pip, what are the major currency pairs, what are the best technical indicators, how to read forex charts is available online FREE. Just go through that and then open a demo account. Start practicing on the demo account and practice till you start making consistent profit in your trades. Once, you achieve that you are ready for the live trading challenge. Good Luck!