How Buying and Selling Works In Forex

Question: When I am going long/bullish (buying) EURUSD which currecy am I buying, the EUR or USD?

Answer: When you click on "Buy" and therefore go long on EURUSD you are buying EUR, and selling USD.

But if you click "Sell" and go short on EURUSD you are selling EUR, and buying USD.  

Another example: If you are trading USDCHF and want to buy USD, then you would go long (bullish) on USDCHF (which means you would be selling CHF). 

But if you want to buy CHF then you would sell USDCHF, and therefore go short or bearish on that currency pair.

The currency on the left is always the Base currency, and the currency on the right is always the Quote currency.

When you buy the base currency you are automatically selling the quote currency. And when you sell the base currency you are automatically buying the quote currency.

News Releases and their affect on Currencies

Looking at the above informtion in context of news releases we can speculate which direction a currency pair may go during a news release affecting either currency in a currency pair (such as EUR news releases, or USD news releases).

When looking at Forex Calendars (such as http://www.forexfactory.com/calendar.php) you will notice various types of new releases such as low impact, medium impact, high impact, and "speaks". 

You will also notice news release for the following currencies: EUR, USD, CAD, GBP, CHF, JPY, AUD, NZD, and now CNY on some calendars. 

And you will notice different news releases (Trade Balance, Core Retail Sales m/m, New Home Sales......to name just a few). 

You will also notice columns such as "Actual", "Forecast" and "Previous".

"Previous", for example when looking at a news release affecting USD called "New Home Sales", will show you the results of the last time that particular news release (new home sales) took place for USD. 

"Forecast" is the speculation and forecast of what might be the potential outcome of the current new home sales news release.

"Actual" reflects the number of the actual news release as soon as it takes place.

In the above example, if we are looking to trade EURUSD, and the "New Home Sales" drops (is lower then the previous time the new home sales report was released) we are looking potentially to sell USD (go long on EURUSD and GBPUSD and AUDUSD etc., but short on USDCHF, USDJPY, USDCAD).

But if new home sales was higher than the previous new home sales release we would look to potentially buy USD (go short on EURUSD and GBPUSD and AUDUSD etc., but long on USDCHF, USDJPY, USDCAD).

Sometimes news releases are favorable for USD, and the USD strengthens, and people therefore go long/bullish/buy USD, and sometimes news releases are unfavorable for USD, and USD weakens, and therefore people go short/bearish/sell USD.

Of course it is not always this balck and white, and sometimes broker's raise the spread during some news releases. And sometimes news releases on other currencies may have an affect on currency pairs not related to the news release.

If you are going to trade the news it is safter to enter a trade several minutes or an hour (depending on the news release) after a news release, and just scalp for 20 pips or less (as long as the spread does not skyrocket when you try to enter the trade).

When to Click Buy and when to Click Sell

There are books, membership websites, seminars, indicators, and the like that attempt to show you how to enter a trade at the right moment. But in the last analysis it is called speculation.

Whether you click a buy or sell button you can gain money either way, or lose money either way.

If you click "buy" and the currency pair you are trading goes up (+ points or + pips) you gain money.

If you click "Sell" and the currency pair you are trading goes down you gain money.

If the price of the currency you are trading goes down after you click buy you are losing money, and if it goes up after you click sell you are losing money.

How much you gain or lose is determined by the lot size of your choice when placing a trade, and it is also determined by your choice of "take profit" and "stop loss" values.

The market fluctuates after you place a trade, and never moves in one direction or the other smoothly non-stop.

You need to place a stop loss value which will protect your account from being wiped out or from hitting a margin call.

But you don't want the stop loss too close to your entry point otherwise it can get triggered right away thus causing you a loss.

You can set a "take profit" value so many points ahead so that when/if the market reaches + points in your direction it can trigger your take profit and close the trade. The money would then go into your broker account.

Here is an example of the entire process:

After you sign up with a broker and download their free trading platform (MT4 is needed if you are going to buy any EA's from EdsForex.com), and have already done a lot of practice on a demo account with fake money, you can deposit real money into your broker account to use for live trading.

Decide on a currency pair to trade (such as EURUSD), and then decide to click buy or sell. In this example say you click "sell", and you choose a "lot" size of .1 (about $1 per pip ). That is a mini lot.

Your take profit is set at 20 pips, and you set your stop loss at 50 pips.

Since you clicked sell you are looking for the price EURUSD to go down at least 20 pips so it can hit your take profit, and deposit $20 into your account (minus the spread which is usually lower then 3 pips on EURUSD).

If the price rises and hits your 50 stop loss you would lose $50 which is deducted from your account balance. You would have been better off choosing to click "buy" in this case.

Please see "What Is Forex?" and "Money Management", and the links on those pages for details about Forex, pips, currencies etc.