There are what is known as the bid price and ask price in the Forex market. As you can imagine, the ask price will always be higher than the bid price. The broker makes his money off the difference in pricing and because of that they will always be in his favor. Trades in Forex are different from stock trades because more profitable trades are made when buying high and selling low with fast moving currency pairs.
If you want to purchase a currency pair, you will pay whatever the asking price is. For example, if you look at GBP/USD and you think that the pound will become stronger than the dollar, you would try to buy the pound at a lower rate and sell the dollar since you are predicting it will weaken as against the pound. The pound is considered as the "base currency" and will control the trade, which is called a long position.
The price that you wish to sell is the bid price. In the same example, suppose you think the dollar is now going to rebound and become strong against the pound. You would then be buying the dollar and selling the pound. But the base currency would still control the direction of the trade.
Whenever you are buying the cross currency, or the one which is not controlling the trade, the USD in the GBP/USD pair, all signals will reverse. The price of the currency pair will decrease, which you would then sell to make a profit.
You have to calculate the number of pips you earn in a short trade as the same as those you would earn in a long trade. Ignore the purchase or sale price and figure the difference between the higher number and the lower one to get your gain.
Ask prices always exceed bid prices. This difference in price is called a spread. This is what the broker will earn as his commission. Brokers make their money based on the volume of trades accomplished and not through individual large commissions.
Spreads are often competitive. Brokers frequently will offer spreads that are small in order to attract more customers and let them keep more profits from trades. The most commonly traded currency pairs, termed as "sticking with the majors," usually have spreads that are much smaller than others since the volume of activity makes up for the decreased brokers fees.
If you want to purchase a currency pair, you will pay whatever the asking price is. For example, if you look at GBP/USD and you think that the pound will become stronger than the dollar, you would try to buy the pound at a lower rate and sell the dollar since you are predicting it will weaken as against the pound. The pound is considered as the "base currency" and will control the trade, which is called a long position.
The price that you wish to sell is the bid price. In the same example, suppose you think the dollar is now going to rebound and become strong against the pound. You would then be buying the dollar and selling the pound. But the base currency would still control the direction of the trade.
Whenever you are buying the cross currency, or the one which is not controlling the trade, the USD in the GBP/USD pair, all signals will reverse. The price of the currency pair will decrease, which you would then sell to make a profit.
You have to calculate the number of pips you earn in a short trade as the same as those you would earn in a long trade. Ignore the purchase or sale price and figure the difference between the higher number and the lower one to get your gain.
Ask prices always exceed bid prices. This difference in price is called a spread. This is what the broker will earn as his commission. Brokers make their money based on the volume of trades accomplished and not through individual large commissions.
Spreads are often competitive. Brokers frequently will offer spreads that are small in order to attract more customers and let them keep more profits from trades. The most commonly traded currency pairs, termed as "sticking with the majors," usually have spreads that are much smaller than others since the volume of activity makes up for the decreased brokers fees.
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