Forex is always 2 currencies  quoted one against another,  the first quoted currency is known as the Base Currency, the second is the Quote currency.

spreads1

All Forex quotes are quoted with two prices: the bid (sell) and ask (buy). Generally, the bid is lower than the ask price.

 

The bid is the price at which the broker is willing to buy the base currency in exchange for the quote currency. This means the bid is the best available price at which you (the trader) will sell into the market.

The ask is the price at which the broker will sell the base currency in exchange for the quote currency. This means the ask price is the best available price at which you will buy from the market.

 

The difference between the bid and the ask price is known as the spread. The Spread is the way in which your Market Maker/Broker makes its profit.

All deals are done on “round turn” meaning that the deal must be “Opened & Closed” to complete the transaction.

On the EUR/USD quote above, the bid price is 1.4792 and the ask price is 1.4795. A spread of  3 PIPs.

If you want to sell EUR, you click “Sell” and you will sell Euros at 1.4792. If you want to buy EUR, you click “Buy” and you will buy Euros at 1.4795.

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Example

You purchase

10,000 Euros at the EUR/USD exchange rate of 1.1800 = +10,000 -11,800

After a period of time, you exchange your

10,000 Euros back into U.S. dollar at the exchange rate of 1.2500 =10,000 +12,500

You earn a profit of $700  (+12,500-11,800) = +700