Decide if You’re Going to Buy or Sell (take a short
position or long position)
Once you’ve determined the currency pair you want to trade, you
need to know the current price the pair is trading at. All forex is quoted in terms of one
currency against another, with each currency pair having a base currency and a quote
The currency that comes first is the base
currency and the second is the quote currency.
When trading currencies, you:
Buy a currency pair when you believe that the
base currency will strengthen against the quote currency, i.e. the price of the base
currency will go up or the quote currency will weaken against the base currency i.e. the
price of the quote currency will go down.
Your profits will increase in line with every
increase in the exchange rate and you will incur a loss for every point the exchange rate
falls below your open level.
Sell a currency pair when you believe that the
base currency will weaken against the quote currency or the quote currency will strengthen
against the base currency.
Your profits will increase for every point the
exchange rate falls and you will incur a loss for every point the exchange rate rises above
your open level.