Opening and closing a position

Beginner Questions
1

Hi,

Im just a bit confused on some things and I was hoping someone could help me out.

Supposing I go long on the EUR/USD pair, hoping for the price to rise, so that when I close the trade I will make a profit. There is a technicality that is confusing me and that is when I open the position do I look at the buying price of the pair and when I want to close the position, I want to see if the selling price has risen or do I look if the buying price has risen?

Secondly, when I look at a forex trading platform such as FXCM, for a pair I see two rates, the buying and selling. What if I want to see the actual rate i.e. something like what is displayed on xe.com, do I subtract or add the spread value to the buying or selling rate? If so, then to which do I add and from which do I subtract?

Thanks

2

There is no such thing as the actual rate.

There is the:

Bid - the price at which the broker offers you to buy

Ask - the price the broker is willing to pay, to buy from you

If you buy one lot EUR/USD, and the bid/ask is 1.2503/1.2500 that means that the broker is willing to sell to you at the price of 1.2503.

Say, to make an easy example, that you immediately decide that you want to sell back the lot. The broker then says: yes, I will buy back the lot, I offer you 1.2500.

This is how it works, and the 3 pip difference is the spread, AKA profit for the broker. There is no actual or true price, there’s always a bid and an ask.

Hope this helps

3

Just a note on the spread. Always subtract that from your initial entry on the trade.

For instance if your trade triggered, the spread was 4 pips and price did not move past your entry price either way, your trade would be at -4 pips.

Basically any trade you do, with a spread, you always come in already losing.

So, for any trade to be in profit you have to beat the spread to at least break even at 0 pips lost/won AND go postive past that point to be in profit.

So, if your target was +50 pips on a trade, you would actually have to make +54 pips from your entry. So, keep that in mind when figuring stop losses and TP.

This is why scalpers want a very small spread. They have to beat the spread and make profit past that in a very tight space of time, in which price might go against them quickly.