The Basic concept of Forex trading

What is Spot Price?

Generally, a spot price is the current market price at which a financial instrument is being bought and sold for immediate delivery. The spot price is differentiated from forwarding price, and future price since the assets in these two are delivered in the future. Importantly, spot prices are used to represent

a base indicator for pricing indicators. Spot prices are quite essential in the spot market as they are used to make a representation of what buyers and sellers use to value their assets. Further, spot prices are continuously changing as they vary in response to the variation of supply and demand.

What is an Order Book?

Notably, an order book alludes to an electronic list of buy and sell orders that comprise of specific financial instruments organized in order of price levels. Normally, the order book is updated in real-time, depending on the market volatility. Importantly, the order book is quite crucial as it also indicates the market depth. The key players in forex markets use the order book to gauge the state of play at any given time that they want to trade. Order books are also important as they help in increasing transparency within the financial markets as they state the specific price levels of the financial instruments. It indicates how many bids as well offer a specific instrument has at each price level.

What is the Bid Price?

A bid price is a price at which a trader is willing to sell an underlying financial instrument, and from the perspective of a buyer, a bid price alludes to the price at which they are willing to purchase an underlying financial instrument. Usually, while trading financial instruments, a bid price is the price at which an instrument is quoted. Usually, a bid price for a given instrument is displayed in the market; nonetheless, investors are not restricted to buy or sell the instrument at the quoted prices, they are normally free to specify their bids.

What is the Ask Price?

The asking price, on the other hand, alludes to the lowest price a seller is willing to sell their financial instrument at the current moment. Similarly, like other prices in the financial markets, the asking price changes continuously as investors react and, at the same time, make moves. The ask price is typically a fairly good indicator when it comes to valuing instruments at a given time despite the fact that it can’t be taken as the true value of an instrument. Again, investors are not restricted from buying or sell their instruments at the ask price level, and for that, investors can specify their bid while executing a trade .

What is the Spread?

Importantly, forex trades need to familiarize themselves with FX spreads as they are the actual cost of trading currencies. Usually, spreads are based on the buying and selling price of a currency pair; the costs, on the other hand, are based on forex spreads and lots sizes. Normally, a forex spread can be viewed as the price difference between where a trader might buy or sell an underlying instrument. Just like other spreads, forex spread is quite crucial as it presents a way through which investors can take advantage of market imbalances. Forex spread can also be utilized as a conservative hedging strategy that lowers the volatility of a portfolio, reduces the associated biases, and ultimately generate profits.

 

About the Author

Payam Zolfagharian

Hi my name is Payam Zolfagharian, I’m a retail forex trader. I will show you how to be a successful forex trader, preserve your capital, generate consistent and profitable returns from forex trading and finally trade for a living.

View All Articles