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The forex market or FX market deals with the trading of currencies of various countries. To make money with forex currency trading, you have to buy low and sell high.

The forex currency market fluctuations depend on various social-economic and political factors such as commercial, banking activites, government involvement, interest rates etc. It is constantly in motion and very rarely would a currency value stay the same.

As a trader, you must know how to determine the trend of the rate and buy currencies that are appreciating or sell a depreciating currency and make money by reserve transactions. It’s similar to stock trading.

The currency rates are represented by a 6 letter word which is comprised by the national currencies of two countries. For example GBPUSD (GBP-USD) means the number of US dollars to one British Pounds. The more expensive currency is displayed first.

Forex Trading Quotes

To understand forex trading quotes, it is usually represented as a five figure number. An example is USDJPY = 120.56. It means 1 US dollars is equivalent to 120.56 Japanese Yen.

If the currency rates changes say in the previous example USDJPY = 120.56 moves to USDJPY = 120.57. It means it has moved by 1 point. More accurately speaking, it has depreciated by 1 point. Since it takes 0.01 more Japanese yen in exchange for 1 US dollar, it has depreciated.

Bid and Ask Prices

Most forex currency traders enter the forex market either as a buyer or seller of a particular currency.

For example a seller offers the currency GBPUSD at 1.6235 while the buyers bids for it at 1.6125. The seller’s price is called ask while the buyer’s price is called bid.

This is why, if you anticipate GBPUSD to appreciate, then you should decide to buy the british pound when it is low and sell it high later. You can BUY only from a seller offering it at the price equal to ASK. Should you be selling the pound (this operation is called SELL), the buyer will bid at a price equal to BID for it (this holds true for all currencies).

Stop And Limit Orders

Stop and limit orders are useful to protect yourself from cases where there are unforeseen losses and you can limit the amount of losses you are willing to bear.

An example would be if the rate reaches a preset level. You have opened a position expecting the rate to go up (on the chart). To protect yourself from significant losses if the rate moves down, especially in such a situation when you don’t have or are about to lose control of the market, you should enter a STOP, that is set a price at below its current value at which your position should be closed with no further instructions.