Basic forex knowledge

Well,After we know what is forex ( if you do not know yet refer to our introduction to forex ) We shall start to know how forex works..
First thing you shall know about forex that it is a MARKET..And in this market we sell and buy ( very logical) We sell currencies at the same time we are buying another currency..Too hard? let me give you an example
If we chose the pair EUR/USD (EUR referring to euro and USD referring to united states dollar) their will be a number next to that which we will assume to be 1.5000
This is called a forex quote USD/EUR =1.5000
So in our example...As forex is a market,and we are dealing with USD and EUR..If we buy EUR we will pay USD for it( and then you are said to buy euro and at the same time you sell USD)
From our example we understand one thing..The first step in forex is choosing the pair you will be trading with ( we will discuss what pairs mean and what are the kinds of pairs available)
Second thing we understand is,when we are trading in forex,when buying a currency we automatically sell another currency...Also selling a currency meaning buying another one.This is easy and logical.
Now if we completed our example..You decided to buy the euro ( which is the base currency in the above quote and we will understand that after a while) by paying US dollars..and the price is put in the quote EUR/USD=1.5000 that means that one euro equals 1.5000 dollars..you bought euro because you expected its price will go up and .And lets assume now that the euro really goes up...and now the quote is EUR/USD=1.6000 and then you sold euro (automatically you bought dollars) And you earned the difference between the 2 prices..
So here comes the third thing we are learning in this article..Profits and losses in forex are measured by fluctuations of one currency's market activity compared to the other
Now we can simply understand that the profitable trading in forex totally depends on the ability to discern price trends in market's activity..And this is the essence of studying and learning forex..Expecting prices' trends depends on 2 important items,technical analysis and fundamental analysis which we will discuss later in details..
what we understand here is a forex trader can earn simply by doing Right expectations of the price trends..Forex has a strong profit potential from the continual market fluctuation by buying a specific currency when it is weaker and selling it when it is stronger..And the trader can continually win by the continuous process of pairing strong and weak currencies..
If we wanted to go deep into the forex world..We can understand that as any market..People sell and buy goods as they need them,this is the basis of every trading..And as for currencies..People sell and buy currencies as they are always needed..Let me explain more,lets assume you are Saudi and you want to travel to USA..then you shall buy US dollars so that you can live in USA for the certain period you are there..This is a very simple example,on a larger basis..Lets assume you are a country,and you want to import goods from USA,again you need US dollars to buy these goods( as any country only accepts their currencies when they sell their goods to other countries which means the country's exports are a very important factor in determining the value of this country's currency) so,what we understand here..As life goes on,Currencies will always be needed and always there will be high rate of demand and supply..
But when we are trading in forex..We don't buy and sell currencies to use them..We only trade them to make profits..And this is called Spot forex trading..
Spot forex trading is our own business from now and then..We trade currencies and we win..
Now we have to know the currencies available for trading..We will know that all currencies are available for trading..But there are some major currencies that accounts for most transactions occurring in the market everyday..
These currencies are
USD ( US dollars)
EUR ( Euro)
JPY (Japanese yen)
GBP (Great Britain pound)
AUD (Australian dollars)
CAD (Canadian dollars)
And here comes the meaning of Currency pairs...
A currency pair is like (EUR/USD) and (USD/JPY) JPY accounts for a Japanese yen..These pairs are followed by quotes (prices) so it becomes like
EUR/USD =1.6000/1.6005
So what does that mean?
The first currency in the pair is called the base currency ( here the EUR) the second one is called the counter currency (USD)
the first one is called bid( or sell) which is the price at which we sell the base currency and take (or called buy as we said before) the counter currency
the second one is called ask ( or buy) which is the price at which we buy the base currency paying the counter currency.
in the above example..If we buy Euro( and automatically sell dollars),we will pay 1.6005 dollars for each euro
If we sell euro( and automatically buy dollars) we get 1.6000 dollars for each euro
The difference between the ask and bid is called Spread..And this is simply the profit the brokerage firm you are dealing with makes..And we will discuss that later in details

in our coming article we will be discussing Important forex terms
Forex
Introduction to forex