Forex trading is a decentralized digital system of exchanging money. It involves largely the rigorous processes of speculating, buying and selling of currencies. It usually takes place five days in a week. Just like crypto currencies, it basically entails selling a currency when you perceive the price will go down in the future and buying it when you speculate its worth will increase in the future. This process accounts for the constant fluctuation prevalent in the international exchange market phenomena.
Forex Automation of currencies is influenced by the exchange rate at the time. This means that the worth of one country’s money in another currency at the time of transaction influences the rate of exchange. For instance, the worth of one Dollar in Naira this month will determine the exchange rate of Dollar against naira this month.
Basic Terms in Forex Trade you must know
Foreign Exchange Rate
In a simpler term this is the worth of a country’s currency in terms of another. For example, the worth of one Naira in terms of Dollar i.e. (367 naira – 1 dollar). This simply means that you trade a currency for how much it amounts in another foreign legal tender.
Trading forex involves two currencies at a time. The first to the left is called the base currency. It automatically assumes the place of the higher currency and takes the lead in the trade. It is used to buy the lower money which is usually positioned to the right.
Quote currency or counter currency
The second cash symbol basically placed to the right is called the quote or counter currency. It represents the lower legal tender in most cases. Then, you can used it to sell the base currency which is higher in worth.
The bid price is the amount of the lower cash symbol (quote currency) needed to buy a unit of the higher counterpart (the first or higher currency). Bringing it home now, it means how much of the Nigerian Naira needed to purchase One US Dollar. For instance, if the USD is the base price and the Nigerian Naira is the quote price ($1 = #367). The base price is $1 while the quote price is #367. Therefore, #367 is the bid price of $1.
How Does Forex Trading work?
One Currency Trading is placed against the other; a higher and a lower cash symbol respectively. On the other hand, two prices are quoted on the trade box. One is the buy price the other is the sell price. This explains the fact that one currency is worth the other. Obviously the first to the left takes the lead and automatically assumes the higher position.