Buy or Sell a Currency Pair While Trading in Forex
Index 1.
The Basic of Currency Pair
2.
Buying a Currency Pair
3.
Selling a Currency Pair
4.
When you Buy and Sell While Trading Forex?
5.
Taking a Position in Forex Market
The Basic of Currency Pair
The ‘basis’ for the buy or sell is the base currency.
The traveller first sold the EUR/USD pair – to do this he paid the base currency (euros) to get (i.e. to buy) equivalent dollars.
In the second transaction, he bought the EUR/USD pair – to do this he bought his euros back by paying (i.e. selling) the quote currency, i.e. dollars.
Buying a Currency Pair
When we buy a currency pair, that means we are buying the base currency by selling the Quote currency.
Buying EUR/USD, it means that we are buying euro by selling USD.
Selling a Currency Pair ď ˝
When we sell a currency pair, that means we are selling the Base Currency by buying the Quote Currency.
ď ˝
Selling EUR/USD, it means that we are selling the euros to buy USD.
Summary: ď ˝
Buying a currency pair means that we are buying the Base Currency by paying or selling the quote currency and Selling a currency pair implies that we are paying by the base currency to buy the quote currency.
ď ˝
The first currency in the currency pair is Base currency.
When you Buy and Sell While Trading Forex?
The value of currencies appreciates or depreciate against other currencies because of the gaps in demand and supply. From the longer-term perspective, the
demand and supply depend on the health of the economy.
If the economy of a country A is performing better than the economy of country B, then the currency of country A price will go up and will be more in demand.
In shorter-term, the prices move because of short-term speculative trading.
You can buy the currency pair if you consider the base currency will appreciate compared to quote currency.
So, we can sell the pair if you think the base currency will depreciate compared to the quote currency.
Taking a Position in Forex Market
In the Forex market, you can buy a currency pair when you analyze that the price of the base currency should go up.
When the price appreciate, you can sell the currency pair to earn profits.
On the other hand, if your analysis says that the price of base currency should go down, then you sell your first pair and when the price goes down.
Then you buy it back to cover your previously sold position to earn your profits.
When you had sold without having it, you had just taken it on loan or borrowing from forex broker and had sold that, and when the price goes down, you buy the currency pair to close the trading position.
You take a position in the Forex market when you buy or short-sell a pair.
Long & Short Positions
If you buy a pair, you are said to be long pair. On the other side, if you sell a pair, you said to be short.
Note it down that when you already have bought position and selling it to make a profit, then it is not short selling but closing or covering the position.
Short-selling is when you first sell it without having any bought position.
ď ˝
The bottom line is that you can make a profit on both by going Long or Short.
Thank You