26th May 2009
FOREX tutorial for beginners, part 3
Last we saw briefly on skills we should have before starting. We looked at knowledge; money management and psychology as some of the most important skills.
Now we are going to look at bid, asks and spreads. Bids are the price a seller asks for a currency; the price you have to pay for it. Asks are the price you are selling for. Keep in mind the bid and asks prices are not the actual value you from sell and buy prices. There is a small difference, which we call spread. This spread is what earns the broker money. They often sell for a value above the value, and buy for a price bit above the real value. The spread is often represented by the word pips (percentage in points). You often want to look for serious FOREX platforms and brokers offering low pips for transactions.
I hope this explanation wasn’t too clumsy; but you will shortly understand true meaning of words. There is always a true sale and buy price of a currency; but bankers or brokers earn money from the spread; or difference between what you pay and the true value. It’s not as complicated as it sounds like; but everyone wants to earn some money; and brokers and banks often earn some money by adding a small difference on the currency. You as a trader are mostly busy chasing profits from selling at a high price and buying at a low price.
Before you start using your money on the FOREX market you should be aware that short term investments; especially day trading is a risky business. You might come to many wins; but also suffer large losses. Hence; it’s important for any beginner to only trade spare money you can afford to lose. The business of trading being risky is not reduced to intelligence; it’s hard to succeed with both if you are gifted, and if you aren’t gifted. You should also keep in mind currency exchange is more complicated and difficult to understand that trading stocks. To really have a good chance to do well you should read books and really educate yourself in economic, stock trading, microeconomics and macroeconomics. Some basic understanding of how political directions might affect a currency might also be a smart topic to understand. And as we discussed in a previous posting you should educate yourself in psychology and self understanding; and of course within money management.
-Kentaki-
Last we saw briefly on skills we should have before starting. We looked at knowledge; money management and psychology as some of the most important skills.
Now we are going to look at bid, asks and spreads. Bids are the price a seller asks for a currency; the price you have to pay for it. Asks are the price you are selling for. Keep in mind the bid and asks prices are not the actual value you from sell and buy prices. There is a small difference, which we call spread. This spread is what earns the broker money. They often sell for a value above the value, and buy for a price bit above the real value. The spread is often represented by the word pips (percentage in points). You often want to look for serious FOREX platforms and brokers offering low pips for transactions.
I hope this explanation wasn’t too clumsy; but you will shortly understand true meaning of words. There is always a true sale and buy price of a currency; but bankers or brokers earn money from the spread; or difference between what you pay and the true value. It’s not as complicated as it sounds like; but everyone wants to earn some money; and brokers and banks often earn some money by adding a small difference on the currency. You as a trader are mostly busy chasing profits from selling at a high price and buying at a low price.
Before you start using your money on the FOREX market you should be aware that short term investments; especially day trading is a risky business. You might come to many wins; but also suffer large losses. Hence; it’s important for any beginner to only trade spare money you can afford to lose. The business of trading being risky is not reduced to intelligence; it’s hard to succeed with both if you are gifted, and if you aren’t gifted. You should also keep in mind currency exchange is more complicated and difficult to understand that trading stocks. To really have a good chance to do well you should read books and really educate yourself in economic, stock trading, microeconomics and macroeconomics. Some basic understanding of how political directions might affect a currency might also be a smart topic to understand. And as we discussed in a previous posting you should educate yourself in psychology and self understanding; and of course within money management.
-Kentaki-
Posted by Kentaki under 
Forex Tutorial for Beginners 
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