Basic terms of Forex

Explanation of basic terms of Forex and how to choose the right currency to buy or sell, you will find here …

Explanation of basic terms of Forex

– Currency or the currency unit you are going to spend or want to get rid of is called the base currency. On the other hand, the currency you intend to buy is called the secondary currency. When trading on Forex, everything is done by buying one currency to buy another.

– The exchange rate tells you how much you need to spend the sub currencies to buy a certain amount of base currency.

– The long position means you are going to buy the base currency and sell the currency as a secondary one. Our example shows a situation where the buyer sells USD to buy GBP.

– A short position means you are interested in buying a secondary currency and selling a base currency. In other words, you would like to sell GBP and buy USD for them.

– The bid price is the price the broker is willing to pay for buying the base currency. This price is the best price you would like to sell the secondary currency on the market.

– Ask price is, on the contrary, the price at which your broker sells the base currency in exchange for the currency. Asking price is the best possible price you are willing to buy on the market.

– Spread represents the difference between supply and demand.

– Let’s do a lesser prognostic exercise in the economy. Suppose we assume that the USA economy will continue to weaken, which is not a good sign for the US dollar. So it would be logical for you to sell dollars and buy them the currency of a country whose economy is strong.

– Country’s trade balance. If this country has sufficient demand for goods, it is likely that it will export a significant amount of goods, generating corresponding amounts of money. This trade advantage strengthens the economy of the state, and hence the value of its currency.

– Political situation: If a country holds elections, its currency will strengthen if the election winner has a financially responsible plan. At the same time, if a country releases regulation in favor of economic growth, the value of the currency will most likely grow.

– It is also advisable to look into economic reports, which means monitoring the country’s GDP or other economic indicators such as employment and inflation rates, which also affect the value of each country’s currency.

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