The currency trading tutorial will give you a basic idea of how things works. However, you must keep in mind that this tutorial is only a basic one. The Forex market is complex, fast-paced and requires serious study if you wish to trade successfully.

Now let's begin by looking at the fundamental unit involved in every trade: the 'currency pair'.

What are currency pairs?

Currency pairs are units of two currencies involved in a forex trade. If you want to buy Euros with selling US dollars, you would look at the exchange rate that is quoted for the EUR/USD currency pair. Or, if you want to sell Euros to buy U.S. dollars, you should look at the exchange rate quoted for the USD/EUR currency pair.

You might be thinking: "Aren't they the same thing?" Well, they almost are, but you must look at the correct pair, in the correct order, based on the currency being purchased.

There are two reasons for doing this:

1st, it is easier to calculate the results of your exchange in terms of how much of the base currency you can purchase with your 'quote' currency. Your base currency is the currency you buy, and the quote currency is the currency you sell in exchange for the base.

When quoting an exchange rate, your broker will list the base currency first in the pair, and the quote currency second.

So when you see a pair like EUR/USD, you are seeing the cost of 1 Euro in US Dollars. An exchange rate quote of EUR/USD = 1.4436 means that 1 Euro costs $1.4436 in US Dollars.

Similary, the USD/EUR pair gives the cost of 1 US Dollar in terms of Euros. An exchange rate of USD/EUR = 0.6833 would mean that 1 US Dollar costs 0.6833 Euro.

The 2nd reason for looking at the correct buy/sell ordered pair is that you will want to know the difference between the 'bid price' which is the exchange rate, and the 'ask price' which is what the market makers want for the currency.

'The spread' is the difference between bid price and ask price.
Forex traders are subject to spreads when closing or opening trades in the buying position.

So, you are always subject to a spread when you buy, regardless of whether you are closing or opening the trade.

Open buy -> spread

Close sell -> no spread

Open sell -> no spread

Close buy -> spread

Say that you want to buy the EUR/USD. The bid price is 1.4435. The ask price may be something like 1.4440. You must pay the spread of 0.0005 in order to do the trade.