Forex buy and sell
Family I · Instruments
Not to be confused with forex, forex business, forex stand for.
Forex buy and sell describes the two-sided nature of every foreign exchange transaction: a trader buys one currency while simultaneously selling another, forming a currency pair. The term also covers the two actions a trader takes to open and later close a position, whether going long or short. Profit or loss arises from the change in the pair's exchange rate between those two actions.
How a buy and a sell work together
In forex, currencies are always quoted in pairs, such as EUR/USD or USD/JPY. The first currency is the base and the second is the quote. Buying the pair means buying the base and selling the quote; selling the pair means selling the base and buying the quote. A position is opened with one action and closed with the opposite action. Going long means buying first and selling later; going short means selling first and buying later. The difference between the opening and closing rates, adjusted for the position size, determines the result.
Worked example
A trader buys 10,000 units of EUR/USD at 1.1000 and later sells them at 1.1050. The pip movement is 50 pips, and for a 10,000-unit position each pip is worth approximately 1 unit of the quote currency (USD).
Costs such as spreads, commissions and swap fees are not included in this simplified calculation and vary by broker and account type.
Practical considerations
The bid price is the rate at which the market will buy the base currency from the trader, and the ask price is the rate at which it will sell. The difference between them is the spread, which represents a cost on each round turn. Leverage allows a trader to control a larger position than the deposited margin, but it also magnifies losses. Settlement conventions, trading hours and available order types differ by jurisdiction and venue.
Often confused with
- forex
- Forex is the global over-the-counter market where national currencies are exchanged in pairs, with prices quoted as the amount of one currency required to buy another.
- forex business
- Forex business refers to the commercial activity of trading national currencies in the foreign exchange market, either as a principal dealer, broker, or institutional participant, for profit or client facilitation.
- forex stand for
- Forex is an abbreviation of foreign exchange, the global over-the-counter market where national currencies are bought and sold in pairs at rates set by supply and demand.