Buying and Selling a Currency Pair

Buying a Currency Pair

You can make money trading the forex if you buy a currency pair when the first currency in the currency pair (the base currency) is strengthening compared to the second currency in the currency pair (the quote currency).

Entering the trade—Buying a currency pair is as simple as clicking the Ask Price of a currency pair to initiate a trade.

While all you have to do is click a button, knowing what happens when you click that button is extremely important. However, you don’t have to worry about the technicalities right now. You will learn what happens behind the scenes shortly when you learn about trading on margin.

Exiting the trade—Buying a currency pair is only the first step in the trading process. To complete your trade and take your profits, or losses, you have to exit your trade. To exit a trade, you simply have to do the opposite of whatever you did to enter the trade. If you bought a currency pair to enter the trade, you must sell that same currency pair to exit the trade. Refer to our platform tips for information on how to close your trades.

Selling a Currency Pair

You can make money trading the forex if you sell a currency pair when the second currency in the currency pair (the quote currency) is strengthening compared to the first currency in the currency pair (the base currency).

Entering the trade—Selling a currency pair is as simple as clicking the Bid Price of a currency pair to initiate a trade.

While all you have to do is click a button, knowing what happens when you click that button is extremely important. However, you don’t have to worry about the technicalities right now. You will learn what happens behind the scenes shortly when you learn about trading on margin.

Exiting the trade—Selling a currency pair is only the first step in the trading process. To complete your trade and take your profits, or losses, you have to exit your trade. To exit a trade, you simply have to do the opposite of whatever you did to enter the trade. If you sold a currency pair to enter the trade, you must buy back that same currency pair to exit the trade. Refer to our platform tips for information on how to close your trades. 

Doing Nothing with a Currency Pair

You cannot make money trading the forex by buying or selling a currency pair when the first currency in the currency pair (the base currency) is not strengthening or weakening compared to the second currency in the currency pair (the quote currency). When a currency pair moves sideways, it is extremely difficult to make money by trying to buy or sell the currency pair.

To make money when a currency pair is moving sideways, you need to use forex options. You’ll learn more about forex options—what they are and how you can put them to work in your account—later on in your forex education. For now, focus on learning how to identify when a currency pair is going up or down and how you can take advantage of those movements.

The Spread

The spread is the distance between the price at which you can buy a currency pair and the price at which you can sell a currency pair at any given moment.

You cannot buy a currency pair and immediately turn around and sell it at a lower price. The price at which you can buy a currency pair (the “Ask” price), is always higher than the price at which you can sell a currency pair (the “Bid” price).

Whenever you enter a trade, you start out with a small loss because of the spread. You must overcome the spread—hold onto the trade long enough for it to move through the spread—before you will be profitable on your trade. It is a small hurdle to clear and a small price to pay for the leverage and liquidity Saxo Bank provides in the forex market.

 

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