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 currency.
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.