Money Traders

17 October 2011
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In the foreign exchange market, they buy and sell currencies. In other words you trade monies. The process of forex trading is actually quite simple. The mechanics has some semblance to those of other markets, such as the stock market for instance. Thus, as a money trader, if you have any other experience in trading, forex trading will become a breeze.

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The objective of money trading or forex trading is to exchange one currency for another while expecting that prices will change such that the one you bought may increase in value compared to the currency you sold. In this way, the money trader makes some profit

For instance the money trader purchased $10,000 Euros at EUR/USD exchange rate of 1.1800. Three weeks later, the money trader exchanges his 10,000 Euros back into US$ at an exchange rate of 1.2500. Thus, he earns a profit of $700.

How It Read Forex Quotes

Currencies in the forex market are always in pairs. For instance, GBP/USD. The explanation why the currencies are always quoted in pairs is that in forex trading, one is simultaneously buying and selling a currency. For example the forex rate for a British pound versus the US$ is GBP/USD=1.45367. The first listed currency to the left side of the slash is known as the base currency. Thus, the base currency in this example is the British pound. On the other hand, the second currency at the right side of the slash is the quote currency or the counter currency. Thus, the quote or counter currency in this example is the US$.

When the money trader is buying, this exchange rate tells how much one has to pay in quote currency units to be able to purchase 1 unit of base currency. In our example, one has to pay 1.45367 US$ when buying 1 British pound.

When the money trader is selling, this exchange rate tells how many units of the quote currency you will receive for selling 1 unit of the base currency, In our example, one will receive 1.45367 when you sell 1 British pound.

The Long and Short Positions of Money Traders

First, the money trader determines whether he wants to buy or sell a specific currency. If one wants to buy, this means buying the base currency and selling the counter currency. In this case, the trader is hoping that the base currency increases in value so that he can sell it back for a profit. This strategy is known as “going long.” If one wants to sell, this means selling the base currency and buying the counter currency. In this case, the trader is hoping that the base currency value goes down so he can buy it back for a lower price. This strategy is known as “going short”

The Bid and Ask Positions

The Bid is the price wherein one’s broker would be willing to buy the base currency in exchange for the counter currency. The bid is thus the best possible price at which the money trader can sell to the market.

The Ask is the price wherein one’s broker would be willing to sell the base currency in exchange for the counter currency. The ask is thus the best possible price at which the money trader can buy from the market.

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