Forex prices, or quotes, include a “Bid” and “Ask” similar to other financial products.
Bid is the price at which a trader is able to sell a currency pair. The Bid price or sell price of a currency pair is always the lower price in a quote.
Ask,/u., sometimes referred to as “Offer”, is then the price at which traders are able to buy a currency pair. In other words, Forex traders always buy at the high and sell at the low of a price quote.
The difference between the Bid and Ask is called the “Spread” or “Pip Spread”, which is the Trader’s cost per trade or per transaction.
There are typically not additional broker commissions involved in trading the Forex market, as there might be when trading other investment markets.
Reading a forex quote may seem a bit confusing at first. However, it’s really quite simple if you are able to remember two things:
1. The first currency listed is the base currency
2. The value of the base currency is always 1 (one)
Forex markets and prices are mainly influenced by international trade and investment flows. The Forex market is also influenced, but to a lesser extent, by the same factors that influence the equity and bond markets: economic and political conditions, especially interest rates, inflation, and political stability, or as if often the case, political instability.
Though economic factors do have long term affects, it is often the immediate reaction that causes daily price volatility, which makes Forex trading very attractive to intra-day traders. Currency trading can offer investors another layer of diversification.
Trading currencies can be viewed as a means to protect against adverse movements in the equity and bond markets, movements that of course also impact mutual funds.
You should bear in mind that trading in the off-exchange foreign currency market is one of the riskiest forms of trading and you should only invest a small portion of your risk capital in this market.
