How Forex Trading Works

How Forex Trading Works

I already mentioned in my previous post that Forex Trading is either the buying or selling of currencies. A complete transaction is the buying of one currency and selling of another at the same time.

What is Spot Transaction?

From what I understood from articles available on webs, Sopt transaction is like foreign exchange transaction which is done on the spot. Here a trader binds himself to pay a certain amount of currency to the other on the same day within or one or 2 days.

What is Long or short position in Forex Trading?

A long position is a situation in which one trader purchases a currency pair at a certain price and hopes to sell it later at a higher price. This is the so-called notion of "buy low, sell high" in other trading markets. On the other hand it is short position, when one currency in a pair is rising in value, the other currency is declining, and vice versa. If a trader thinks a currency pair will fall he will sell it and hope to buy it back later at a lower price.

On every exchange, a trader has a long position on one currency of the pair and a short position on the other currency. A trader defines his or her position as an expression of the first currency of the traded pair. The first currency in a pair is known as the base currency. The second currency in the pair is called the counter currency. When a trader buys the base currency he or she takes a long position on a pair, if a trader sells the base currency he or she shorts the pair. To better understand this process search for more information on charts.