Currency Trading

Reading and understanding Forex Quotes appears somewhat difficult initially, but in reality it is fairly simple to follow.

In forex quotes there are 3 principal concepts you need to consider and understand:

• the currency format;
• how forex quotes are expressed; and
• pips

Currency Format – in forex quotes, currencies are always quoted in pairs. The first currency is the “base” currency and the second currency is the “counter” currency. In a Forex quote the base currency always has a value of 1.

Also most major currency pairs in forex quotes are priced to 4 decimal places which is the equivalent of 1/100th of 1%. The exception to this rule is the Japanese Yen which only trades to 2 decimal places. For example:

• EUR/USD 1.5932 means 1 Euro will buy 1.5932 dollars;
• GBP/USD 1.9883 means 1 Pound will buy 1.9883 dollars;
• USD/JPY 106.28 means 1 Dollar will buy 106.28 Yen;
• USD/CHF 1.0159 means 1 Dollar will buy 1.0159 Swiss Francs;
• USD/CAD 1.0097 means 1 Dollar will buy 1.0097 Canadian Dollars;
• AUD/USD 0.9663 means 1 Australian Dollar will buy .9663 US Dollars;

How Currency Quotes are expressed – forex quotes are expressed as either “Bid” or “Ask”.

Bid simply means the price the currency market is willing to pay a seller at any given point in time for a specific currency pair.

Ask simply means the price the currency market is willing to sell to a buyer at any given point in time for a specific currency pair.

For example EUR/USD 1.5932-1.5935 means that, from a bid perspective if you are selling Euros and buying US dollars, you will receive 1.5932 dollars for every Euro you give to the broker/buyer. Conversely, from an ask perspective, if you are buying Euros and selling US dollars, you will have to give the broker/buyer 1.5935 dollars for every Euro you receive.

Bid/Ask Spread – the difference between 1.5932 and 1.5935 is called the spread which in this example is a spread of 3 pips. This spread will obviously vary depending on current market conditions.

You will notice that the bidding price in our forex quotes above (1.5932-1.5935) is lower than the asking price. This difference, the “spread”, is how currency brokers make profits without charging commissions to their clients (buy low and sell high).

Pips – in forex quotes, a pip is the smallest price change. In mathematical definition terms, a pip means the last decimal place of a quotation. If the exchange rate goes from 1.2385 to 1.2386, that’s one pip.

Don’t worry if you are confused about forex quotes as you’ll get used to them as soon as you move on and start trading.

Additional Reading:

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Case Upon: How to Read Forex Quotes at www.caseupon.com – Two such import terms are quotation and spread. Quotation deals with the ask price of any cash commodity at a certain period of time. The word quote is sued in almost all kinds of businesses and stands for an approxima.