In our last lesson we looked at what an increase or decrease in the quote for a particular currency pair means to us as traders of the forex market. In today's lesson we are going to continue our discussion on the logistics of forex trading with a look at what the bid and ask for each currency pair means. In most financial markets there are always two prices for a particular financial instrument at any one time which are known as the bid and the ask price. The bid price is the price at which the market maker (the actual entity that is on the other side of your trade) will buy and therefore the rate at which you the client can sell. The ask price is the price at which a market maker will sell and therefore the rate at which you the client can buy.
The difference between the rate at which you can sell (the bid) and the rate at which you can buy (the ask) is referred to as "the spread". Market makers such as the people that sit on the floor of the New York Stock Exchange in the stock market make their money from the spread, or buy charging traders more when they sell a stock than they do when they buy a stock.
Although this is changing with the advent of online trading platforms, the concept of a bid and ask price is foreign to most, because traders are most familiar with the stock market where they have traditionally called their brokers whenever they wanted to place a trade who then placed the trade on their behalf with the market maker. When they call their broker they say they would like to buy x amount of xyz stock, the stock broker simply gives the client the ask price for that stock since the client has asked to buy.
As you can see here however on this online stock trading platform, when requesting a quote for Jet Blue stock the quote window returns two prices, showing both the bid and the ask.
The stock market is in the process of going from indirect access where clients trade through a broker to get to the market maker to a more direct access environment where online trading platforms allow them to trade directly with the market maker. As the forex market for individual traders really started with the internet, the market did not have to go through the same transition. Because of this most forex trading platforms show both the bid and the ask price and make their money through the spread, charging clients zero commissions to trade.
Now that we understand this lets login to our real-time demo trading platforms and look at some examples. If you have not registered for a free demo trading account yet I encourage you to pause this video now and click the free demo registration link above this video if you are watching on InformedTrades.com or in the description section of this video if you are watching on Youtube so you can follow along as well.
Once logged into the platform you will see the quotes window where you can see that the current bid price for the EUR/USD currency pair is 1.5760 and the current ask price is 1.5763. This means that currently you can sell the EUR/USD at 1.5760 and buy at 1.5763. The difference between those prices is the spread.
Moving to the right across the currency window we see that the USD/JPY currency pair is currently trading at 101.89 by 92 which is another way of saying that the bid for the USD/JPY is and the ask is 101.89 and the ask is 101.92 . This means that we can currently sell USD/JPY at 101.89 and buy at 101.92.
As some of you may have noticed, there is a fifth digit there that I have not included in my examples. Don't be confused about this at this point as we are going to learn about in a future lesson.
Now that we have a solid understanding of currency pairs, the currency quote, and the bid and ask prices the next thing that we are going to do is look at actually placing some currency trades. With this in mind the homework assignment for tonight is to place a trade on your demo trading account which would reflect the opinion that you think that the EUR is going to Strengthen against the US Dollar.
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Amazing Trader EVENT RISK Calendar: Fri 28 Apr
12:30 US- GDP
14:00 US- final U of M Survey
Mon 1 May
00:00 EZ, CH, GB- Holiday
All Day Global PMIs
12:30 US- PCE Deflator Tue 2 May
All Day Global PMIs Wed 3 May
All Day Global PMIs
07:55 DE- Employment
09:00 EZ- GDP
12:15 US- ADP Jobs
14:30 US- EIA Crude
18:00 US- FOMC Decision Thu 4 May
All Day Global PMIs Fri 5 May
12:30 US, CA- Employment
Items likely to drive FX rates:
EVENT RISK: Friday @ 12:30 GMT US GDP Preliminary 1Q17 data seen at 1.20% vs. +2.10%. Important data.
EURUSD has surged on a flash EZ HICP data beat. Recall Draghi focus on inflation yesterday.
U.K. GDP U.K. Preliminary 1Q17 GDP data were a bit weaker than forecast
Markets had reacted strongly to the ECB policy decision Thursday. As expected, policy was held steady. Many were unhappy that there were no signals about a future policy "normalization" (tightening).
John M. Bland, MBA co-founding Partner, Global-View.com
looking for your first broker or do you need of a new one? There are
more critical things to consider than you might have thought.
We were trading long before there were online brokers. Global-View
has been directly involved with the industry since its infancy. We've
seen everything and are up-to-data with recent regulatory changes.
The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.
The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.
Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.
The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.
Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.
Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.
Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.
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