3.
Reading the Newspaper
When
reading the newspaper, you'll see the terms
"Bid" and "Ask" price
listed which just requires you to take 1 extra
step in your interpretation since this is
the Market's Action in quoting
you prices. Where you read in the newspaper,
you'll notice the AUD/USD currency pair that
the Bid/Ask price is 0.7250 / 0.7255 which
is sometimes printed as 0.7250/55. Your interpretation
would be that the "Bid" price of
0.7250 is the price that the market
will buy from you.
If you wanted to react to a listed "Bid"
price, Your Action is to
"Sell" to the market. Notice when
you look at the dealer box above, "Sell"
is the first action listed.
In
the trading platform, you would simply click
the "Sell" box to put in a market
order reacting to the "Bid" listed
in the newspaper. If you wanted to react to
the "Ask" price listed in the paper
which is the price that the market will sell
to you, you would click the "Buy"
in the dealer box.
By
the way, the difference between the "Sell"
and "Buy" equals 0.7255 - 0.7250
= 0.0005 points called the spread where each
point is known as a "Pip". Think
of a "Pip" as the smallest unit
of price that moves up or down in the currency
pair. Here, the spread is quoted as "5
Pips" and this value stays the same between
the Buy & Sell quotes as prices move up
and down.
Let's
say you were to open a position by Buying
at 0.7255 and immediately sold at 0.7250 taking
a loss of 5 pips (0.7255 - 0.7250 = 0.0005),
at $1 per pip, you would have lost $5 in this
transaction.
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