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Understanding Forex Quotes

 

For most traders very first thing they need to learn when trading in the financial market is reading Forex Quotes. Price quotes are the language of the market and every trader needs to be fluent in it. Although it sounds daunting but it actually isn’t that tough.

 Reading Forex Quotes:

To understand how to read a Forex Quote, let’s take an example.

           USD/JPY= 85.32

This is referred as a currency pair. The currency on the left of the slash is called the Base currency, while the currency on the right of the slash is called Quote or Counter currency. The base currency is always equal to 1 unit and the quoted currency is what that 1 unit is equivalent to in the other currency. To make it more simplified, here US$1= 85.32 Japanese Yen. In other words $1 can buy you 85.32 Japanese Yen.

Direct Currency Quote and Indirect Currency Quote:

There are two ways to quote a currency pair, either directly or indirectly. A direct currency quote is simply a currency pair in which the domestic currency is the quoted currency; while an indirect quote, is a currency pair where the domestic currency is the base currency. So if you were looking at the Canadian dollar as the domestic currency and U.S. dollar as the foreign currency, a direct quote would be USD/CAD, while an indirect quote would be CAD/USD.

  

Ask and Bid Quotes:

Like buying in stock market, when trading currency pairs, the forex market will have a bid price and an ask price. The bid and ask price are quoted in relation to the base currency.

  1. Bid is the price at which you can sell base currency.
  2. Ask is the price at which you can buy the base currency.

Let us take another quote as an example to make it more clear and transparent.

          EUR/USD = 1.3600/05

Here the bid is 1.3600 and the ask is 1.3605. So in order if you wish to buy the currency then you intend to buy the base currency and therefore looking at the ask price. However, if you intend to sell the currency then you’re looking at the bid price.

Spreads and Pips:

The difference between the bid and the ask is called the spread. The spread is simply the broker’s commission on the trade. Whereas the Pip is the smallest unit of value in forex currency quotes. In the case of the U.S. dollar, euro, British pound or Swiss franc, one pip would be 0.0001. With the Japanese yen, one pip would be 0.01, because this currency is quoted to two decimal places.

For simplicity’s sake let’s take the about quote as an example.

          EUR/USD = 1.3600/05

The difference between 1.3600 bid and 1.3605 ask is 5 pips, which is also the spread. Although these movements may seem insignificant, even the smallest point change can result in thousands of dollars being made or lost. Again, this is one of the reasons that speculators are so attracted to the forex market; even the tiniest price movement can result in huge profit.

 

Now that you know a little bit about currency quotes it shouldn’t be a problem to start your trading career. But help is always welcomed and so contact Mr Siby Varghese and get all the help you need regarding any problems face.

 

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