Buy vs. Sell Orders

Let's recap what we learned so far - we will need this for today's lesson:

1. The First Currency (on the left) is called the Base currency;
2. The Second Currency (on the right) is called the Quote Currency;
3. The price of the pair is usually expressed as a Bid/Ask quote where Bid < Ask.

By now it is clear that on the FX market, you buy or sell currencies. Placing a trade is simple - you click on the chart or on the currency ticker window and you tell the software whether you want to open a BUY or a SELL order and how many LOTS you want your order to be. The Base currency is the basis for the buy or sell operation, in other words the BUY or the SELL transaction applies to the Base currency and is expressed in units of the Quote currency.

The object of the Foreign Exchange Market 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 value(price) of the Base currency expressed in the Quote currency.

For example, the USD/CHF exchange rate indicates how many Swiss francs you need to BUY one U.S. dollar. When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy one unit of the base currency. When selling, the exchange rate tells you how many units of the quote currency you get for selling one unit of the base currency.

Remember that the Buy and Sell rates differ a little (this difference is the Spread) and that when you BUY you pay the Ask price (which is a little higher than the Bid price) and when you SELL you pay the Bid price (which is lower than the Ask).

Economic News and Announcements

You would buy a pair if you believe the Base currency will appreciate (go up) relative to the Quote currency. You would sell the pair if you think the Base currency will depreciate (go down) relative to the Quote currency.

If you always fell asleep during your economics class or just flat out skipped economics class, don't worry! There are online services like those provided by Forex Automoney which will alert you of changing market conditions and send you signals telling you exactly what to do - Buy, Sell, Close or stay out of the market!

In Forex, economics boils down to monitoring the values of several economic announcements (a.k.a. reports or news). The most important one is called “The Non-Farm Payroll” report or simply NFP. This is a report issued by the American government, at 8:30 a.m. Eastern Time on the first Friday of every month.

You DON'T NEED to read the full report as the important part is just one number!

This is the number of jobs added or lost in the economy over the last month. That's it. Simple. The NFP figure is usually between +10,000 and +250,000 in normal economic conditions. If this number differs from the preliminary expected number then this is an indication that the US dollar is actually stronger (if NFP came out higher) or weaker (if NFP was lower than expected) and this will affect the value of most USD pairs, such as EUR/USD, USD/JPY and GBP/USD.

Can you tell whether the value of the EUR/USD  pair will go up or down if the NFP came out higher than expected?

There are other reports as well, affecting various currencies and you don't have to know all of them. But if you want to trade on your own you need to be at least aware of them. You can see all of the reports and their expected values in this Economic Calendar. The following illustration is intended to explain to you how to read the calendar.

This may look a bit confusing and overwhelming but don't worry. It will all sink in in a little while. If, however, you think that a more hands-off approach to Forex may be more to your liking then you might consider using a fully automated trading software like e.g Forex-Autopilot or a signal software like Forex Killer.