In the Forex market you Buy or Sell Currencies. Placing a trade in the foreign exchange market is simple: the mechanics of a trade are very similar to those found in other markets, so if you have any experience in trading, you should be able to pick it up pretty quickly.
The object of forex trading is to exchange one currency for another in the expectation that the price will change, so that the currency you bought will increase in value compared to the one you sold. An exchange rate is simply the ratio of one currency valued against another currency.
Reading a Forex Quote
Currencies are always quoted in pairs, such as USD/JPY or GBP/USD. The reason they are quoted in pairs is because in every foreign exchange transaction, you are simultaneously buying one currency and selling another.
GBP/USD=1.4598
In this case, GBP is listed first and it is the Base Currency. USD is the Quote Currency or counter currency. When buying the exchange rate tells you how many USD you need for 1 GBP, in this case you need 1.4598 USD o buy 1 GBP. When selling you will receive 1.4598 USD after selling 1 GBP. The Base Currency is the base for any buying or selling which may occur.
Deciding whether you want to Buy or Sell:
If you want to buy, you want the base currency to rise in value and then you would sell it back at a higher price. This is called “going long” or taking a “long position.” (long = buy) If you want to sell, you want the base currency to fall in value and then you would buy it back at a lower price. This is called “going short” or taking a “short position”. (short = sell)
Bidding and Asking
All Forex quotes are quoted with two prices: the bid and ask. Most of the time the bid is lower than the ask price.
The bid is the price at which your broker is willing to buy the base currency in exchange for the quote currency. This means the bid is the best available price at which you will sell to the market.
The ask or offer price, is the price at which your broker will sell the base currency in exchange for the quote currency. This means the ask price is the best available price at which you will buy from the market. The difference between the bid and the ask price is popularly known as the spread.