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A quote consists of a buy price which is the offer and a sell price which is the bid. The difference between the two prices is referred to as the spread. High volume pairs like the EUR/USD will typically have tighter spreads than other pairs that don't generate as much trading volume. If you think that the EUR is going to strengthen against the USD, you would buy the EUR/USD. If you think that the EUR will weaken against the USD, you would sell the EUR/USD. This later trade is referred to as shorting the market and involves no additional costs or restrictions in the FX market. Since the direction of interest rates in a country does not change that often, the FX markets are known for their long trending moves.

FX charts will typically show the sell price only on the charts. This can cause some confusion when traders get stopped out of their sell trade with a protective buy stop and see on the chart that the sell price never moved up to their buy stop level.

That is because of the spread on the pair.

Next: What Does a Spread Tell Traders? (25 of 48)

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