1.19 How and When do you Buy or Sell While Trading in Forex?
Buying a currency pair
When we buy a currency pair, it means that we are buying the Base Currency by selling the Quote Currency. Buying EUR/USD means that we are buying euro by selling USD.
Selling a currency pair
When we sell a currency pair, it means that we are selling the Base Currency by buying the Quote Currency. Selling EUR/USD means that we are selling the euros to buy USD.
The ‘BASIS’ – The Base Currency
The ‘basis’ for the buy or sell is the base currency, in our case the EUR. The traveler first sold the EUR/USD pair – to do this he paid (i.e. sold) the base currency (euros) to get (i.e. to buy) equivalent dollars. In the second transaction, he bought the EUR/USD pair – to do this he bought his euros back by paying (i.e. selling) the quote currency i.e. dollars.
Summary: Buying a currency pair just means that we are buying the Base Currency by paying by or selling the quote currency and Selling a currency pair means that we are paying by (or selling) the base currency to buy the quote currency. The first currency in the currency pair is the Base currency – just for the ready reference.
When you BUY and SELL while trading in Forex?
The value of currencies appreciate or depreciate against other currencies because of the gaps in demand and supply. From longer-term perspective the demand and supply depends on the health of the economy. If the economy of a country A is doing better than the economy of country B, then the currency of country A will be more in demand and it’s price will go up. Here the fundamental analysis comes into picture.
In the shorter-term, the prices move because of short-term speculative trading. Here the technical analysis comes into the picture.
You can BUY the currency pair if you think the base currency will APPRECIATE compared to the quote currency. Similarly, we can SELL the pair if you think that the base currency will DEPRECIATE compared to the quote currency.
Taking a position in the Forex market
In Forex market you can but a currency pair when you analyze that the price of the base currency should go up. When the price appreciate, you can sell the currency pair to earn your profits.
On the other hand, if your analysis says that the price of the base currency should go down, then you sell the pair first (yes, you do not own it as yet) and when the price go down. then you buy it back to cover your already sold position to earn your profits. When you had sold it without having it, you had just taken it on loan or borrowing from your Forex broker and had sold that. And when the price went down, you buy the currency pair to close your trading position.
You ‘take a position’ in the Forex market when you buy or short-sell a pair.
Long and Short Positions
If you buy a pair, you are
said to be ‘long’ the pair
. On the other hand, if you sell a pair, you are
said to be ‘short’
. Please note that when you already have a bought position and selling it to make profits, then it is not short-selling but covering or closing your position. Short-selling is when you first sell without having any bought position. The bottom line is that you can make a profit on both side i.e. by going Long or by going Short.
- Forex Transaction Example
- Exchange Rates and Quotes
- How Many Decimal Places in Currency Quotes?
How and When You Buy or Sell?
- Forex Margins and Leverages
- Pips, Pipettes and Forex Lots
- Forex Profits, Losses and Rollovers
- Types of Orders in Forex Trading
Forex Trading When to Buy and Sell
Posted by: derivbinary.com