[quote=“campione, post:1, topic:109408, full:true”]
Thnx a lot for school! but I don’t understand this …[/quote]
Let’s clear up your confusion by defining some terms:
Whenever you transact business with (or through) your broker, you are dealing with “the market”, as the School lesson is using that term.
If your broker is a market-maker, then your transactions are with your broker. If your broker is a true ECN broker, then your transactions are with an entity in the ECN, upstream from your broker. For the purpose of answering the question in your post, it doesn’t matter who takes the other side of your trade – your broker, or some entity in the ECN – someone is acting as counterparty to your trade, and the School lesson is referring to that “someone” as “the market”.
To keep things as simple as possible, let’s say your broker is a market-maker.
In this case, every position (trade) you open puts your broker in an equal and opposite position to yours. That is, if you go LONG one lot of EUR/USD, you automatically place your broker in the position of being SHORT one lot of EUR/USD. And when you exit your trade, your LONG position and your broker’s SHORT position both get reversed.
The only question now is: At what prices are these transactions carried out?
You don’t get to set the prices – either the price to enter or the price to exit this hypothetical trade. Those prices are set by your broker. In trading terminology, we say that your broker is the price maker, and you are the price taker.
Your broker continuously sets two prices for each currency pair: a BID price, and an ASK price.
Your broker’s BID price is the price he is offering to pay for a particular currency pair, if you (or anyone else) wants to SELL to him at that price. He “bids” for EUR/USD (in this example), and you accept his BID price (say 1.1673) and SELL to him at that price, if you so choose. In trading terminology, we say that you (the retail customer) SELL at the BID price.
Your broker’s ASK price is the price he is demanding from you, if you choose to BUY from him. He “asks” for a particular price (say 1.1675 for EUR/USD), and if you want to BUY the EUR/USD, you have to pay the price he sets. In trading terminology, we say that you BUY at the ASK price.
Drill these two phrases into your brain:
When you know those two phrases as well as you know your own name, then the concept that has been confusing you will become clear in your mind.
Most likely, your charts are set to show only one price series – either your broker’s BID prices, or his ASK prices – for each pair. Obviously, at any given moment, the difference between the BID price and the ASK price for each pair is the SPREAD for that pair.
Most traders display BID prices on their charts. But, you could choose to display ASK prices, instead. And you can always switch back and forth, in order to see the specific prices at which you can BUY and SELL any particular pair.
But, always be certain of which price is displayed on your chart at any given time. If your chart is showing you BID prices, then you know that you can SELL at the price you see displayed. But, to BUY, you need to ADD the spread to the BID price, in order to determine the ASK price.
Conversely, if your chart is showing you ASK prices, then you know that you can BUY at the price you see displayed. But, if you want to SELL, you need to SUBTRACT the spread from the ASK price, in order to determine the BID price.
Lastly, train yourself to think in terms of “going LONG or going SHORT”, not “buying or selling” – even though we all use the buying/selling terminology.
In the retail forex market, there is no buying or selling of individual currencies or currency pairs.
Nevertheless, every broker platform out there offers customers prices at which they can “buy” or “sell”. The buy/sell terminology, which is accurate and appropriate in many markets, has been adopted in the forex market, where it is totally inaccurate and inappropriate. But, it has become so ingrained in our market that we will never get rid of it. Don’t let it confuse you.
Even worse, many authors and teachers will tell you that a LONG position in the forex market involves “buying the base currency, and selling the quote currency” – which is a total fiction.
As stated above, there is no buying or selling in the retail forex market.
I hope that helps to clear things up for you.