Buying low and selling high or selling high and buying low is the base of making money in Forex. For example If you buy GBP against USD when each GBP is equal to $1.9554USD and then sell it when it is $2.0235USD, you have made a profit.
First, you should determine whether you want to buy or sell.
If you want to buy (which actually means buy the base currency and sell the quote currency), you want the base currency to rise in value and then you would sell it back at a higher price. In trader’s talk, this is called “going long” or taking a “long position.” Just remember: long = buy.
If you want to sell (which actually means sell the base currency and buy the quote currency), you want the base currency to fall in value and then you would buy it back at a lower price. This is called “going short” or taking a “short position”. Just remember: short = sell.
The big question is that how can you find out the best time to buy and how can you predict that if you buy, the price will go up and you will make a profit?
That is a million dollar question.
What is the meaning of bid and ask price?
In the trade market, we often see bid price and ask price, which detail to describe the gold price (also stock, forex etc). Well, what is the meaning of bid and ask price? If you understand the two price, it will help you know more about the trade market. In the fact, the bid price stands in contrast to the ask price or “offer”.
What is the Bid price?
The “bid” is the current highest price at which you could sell. In the other word, if you want to sell your gold, in generally, you can sell it closest to the bid price but not the bid price.
What is the Ask price?
The ask is opposite of the bid. The “ask” is the current lowest price at which you could buy. As a rule, you buy it often higher than the ask price.
After realize the two terms, we should know another term “bid-ask spread”. The difference between the bid price and the ask price is called the “bid-ask spread”. If you would like to sell gold, a broker will offer to buy it for the bid price. And if you would like to buy it, the broker will offer to sell it to you for the ask price. The spread is the broker’s profit. The ask price is always higher than the bid price, because nobody would like to lose money in business.
Take gold price for example, the bid $1583.00, the ask $1586.00. The spread for gold is (1586.00 – 1583.00 =3.00). The broker keeps the $3.00 /oz traded. Assume that gold trade 200 ozs today, and the average spread is $3.00. The broker gets a profit of 200 ozs * $3.00 = $600.
Don’t forget, the most important of bid and ask price is that buyers pay the ask price and sellers receive the bid price.
Ready to learn more? Check out this article on trading with a demo account.