Your aim in forex exchange trading is to buy currency with another currency in the hope that the currency you bought will increase in value than the currency you used to buy the former.
As an investor, you can take the short or long position in the buy and sell process. The short position pertains to the selling of the currency.
In this position, you will be selling the base currency with the quote currency. When the base currency falls in price, you will buy it back and get your earnings.
You can also have the long position. The long position will require you to sell the base and buy the quote currency. It is opposite the short position as you will now buy back the base currency when it increases in value and sells it.
When visiting a foreign exchange (also money changer), you might have observed a list of paired currencies. This listing reflects the relationship or the equivalent value of one against the other.
The first listing is called the base currency, and other is the quote currency. What happens here is that you use the quote currency to buy or purchase the base currency.
In the forex trading, the widely traded pairing is the EURO-USD. But, in Singapore, there are a lot of pairings to cater to different currency trades.
Pips — If you are new to the forex trading, one of the important terms and concepts you need to know and understand is the pip or pips or percentage in point. The pip in forex trading as defined by Investopedia is related to the currency value (from the previous point of discussion), which is the smallest unit measure when you trade the currencies.
This unit of measure, is however, more than just to calculate. It can be a beneficial concept to integrate into to your trading strategies.
The pip also represents the movement or change in the value of the paired currencies. You can observe the pip on the last decimal of the currency value.
An initial look at the pip seems like an insignificant change in value. However, forex traders know that this can affect investors because it can increase or decrease the value of quote currency when buying base currency.
Some traders even have the concept of ‘pipettes’ for traders or dealers that used a different decimal system from the standard two or four decimals.
A pip can also be powerful when incorporated into your planning and strategy because, despite the changes in the value, you can still earn or minimize loss as an investor.
Thus, when talking to a dealer, you can also ask about the pip and determine how they managed it.
Spread — Aside from the currency and pip/ pipette, the spread i is another concept that traders have to master.Simply put, a spread pertains to the relationship between the ask and bid principle in forex trading. The ask refers to the amount or price that the dealer is asking for the selling of the currency.Meanwhile, the bid is the amount or price that dealer is willing to bid for the currency that is being sold.