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Chapter 5, Part I. Where does the money come from in FOREX? Page 4

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 14, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Now let’s tie together such notions as “lot size”, “unit of currency”, “Base currency” and “Quote currency.

    1. Base currency calls in such way, because it’s the basis for any transaction. When you Buy or Sell, it means that you buy or sell the Base currency. Also, the fluctuation of the exchange rate directly shows the appreciation (rate increasing) or depreciation (rate decreasing) value of the base currency relative the quote currency.

    2. Exchange rate always shows the number of units of the Quote currency per unit of Base currency and lot size in turn shows the number of units of Base currency:

    - If you would like to Buy, the rate shows how much units of the quote (second placed) currency you should to pay for 1 unit of the Base currency.

    - If you would like to Sell, rate, in turn, shows how much units of quote currency you’ll get for 1 Unit of the Base currency.

    3. You should “Buy” the pair if you think that the base currency will appreciate compared to the quote currency. If you believe that it will depreciate, rather, then you would “Sell” it.

    Now let’s discuss such terms as:

    LONG and SHORT positions

    When you’ve already come to decision about what you would like to do – Buy or Sell, just remember some terms that will help you understand what other traders are saying.

    If you intend to “Buy” (other words buy base currency and sell quote currency), it means that you count on the rising value of base currency and would like to sell it back later at a higher price. Traders call this as “Going LONG” or “taking LONG positions”. Other words BUY=LONG.

    If you intend to Sell, rather (sell base currency and buy quote currency), you count on decreasing of the value of basis currency, then you can buy it back at a lower price. This kind of action is called “Going SHORT” or “taking SHORT positions”. Other words SELL=SHORT.
     
    #1 Sive Morten, Dec 14, 2013
    Lasted edited by : Feb 7, 2016
    Nachoga and fran alvarez like this.
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