Some Unavoidable Tips of Reading Forex Quotes
How to Read a Forex Quote
If you’ll be investing and trading in the forex market, you need to know how to read the information provided to make savvy decisions. Forex quotes are relatively straightforward for those with some experience under their belt, but for new investors, they can be a little confusing. Learning how to read a forex quote will help to ensure that you know exactly what’s on offer, and that you’re able to make smart decisions with your investment capital.
The Currency Pair
All forex quotes involve a currency pair. On this market, currencies are always traded in a pair. You’re short one and long on the other. The currency before the slash is the base currency, and the one after the slash is the quote currency. Really, it’s nothing more than a way to say that X amount of one currency is worth X amount of another currency. For instance, in this quote, USD/GBP = 1.50, it means that one US dollar is worth 1.50 British pounds (example only). Currency quotes are always made using the standard abbreviations for national currencies, so make sure you’re familiar with those.
The base currency is the one you’re selling, and the quote currency is the one you’re buying. In the example above, it would cost you $1.50 US to buy one British pound. In a counter quote, it is the reverse.
Direct and Indirect Quotes
It’s possible for the currency quote you’re presented with to be “direct” or “indirect”. These are sometimes confusing, but it is actually pretty simple. In a direct quote, the quoted currency is the domestic currency. In the previous example, this would be the GBP. In an indirect quote, the base currency is your domestic currency. The base currency is always one unit, while the quote currency is variable, regardless of which one is domestic and which one is foreign. So, in an indirect quote using the previous example, the pair would look like this: 1.50 USD/GBP.
Cross currency quotes are different. In reality, these are any quotes in which the US dollar is not used. So, if you’re trading euros for pounds, yen for Canadian dollars or Swiss francs for euros, it will be considered a cross currency quote simply because the US dollar is not being exchanged. Note that if you are in the US, all profits and losses are shown in US dollars through your trading platform no matter which currencies you’re trading (but the quote will show the actual cross currency pair in question).
Prices
In the forex quote, you’ll see a bid and ask price. The bid price means that this is what you’ll take when selling the currency. The ask price applies to buying currencies. They’re formatted similar to the currency pair format, with the bid price before the slash and the ask price after the slash. For example, you might see USD/GBP = 1.5000/05. In this, the bid is 1.5000 and the ask is 1.5005. The difference between the two is the spread, and that’s where the broker makes money.
That’s the basics on reading a forex quote. Understand that pips, or points, are the smallest amounts a price can move in a currency quote. This would be the fourth position to the right of the decimal place. While small, leverage means that thousands of dollars could be gained or lost on virtually any transaction.
By understanding how to read forex quotes, you can make investing a simpler process and ensure better success.
You may Find More Information in : Best Forex Signal Website
If you’ll be investing and trading in the forex market, you need to know how to read the information provided to make savvy decisions. Forex quotes are relatively straightforward for those with some experience under their belt, but for new investors, they can be a little confusing. Learning how to read a forex quote will help to ensure that you know exactly what’s on offer, and that you’re able to make smart decisions with your investment capital.
The Currency Pair
All forex quotes involve a currency pair. On this market, currencies are always traded in a pair. You’re short one and long on the other. The currency before the slash is the base currency, and the one after the slash is the quote currency. Really, it’s nothing more than a way to say that X amount of one currency is worth X amount of another currency. For instance, in this quote, USD/GBP = 1.50, it means that one US dollar is worth 1.50 British pounds (example only). Currency quotes are always made using the standard abbreviations for national currencies, so make sure you’re familiar with those.
The base currency is the one you’re selling, and the quote currency is the one you’re buying. In the example above, it would cost you $1.50 US to buy one British pound. In a counter quote, it is the reverse.
Direct and Indirect Quotes
It’s possible for the currency quote you’re presented with to be “direct” or “indirect”. These are sometimes confusing, but it is actually pretty simple. In a direct quote, the quoted currency is the domestic currency. In the previous example, this would be the GBP. In an indirect quote, the base currency is your domestic currency. The base currency is always one unit, while the quote currency is variable, regardless of which one is domestic and which one is foreign. So, in an indirect quote using the previous example, the pair would look like this: 1.50 USD/GBP.
Cross currency quotes are different. In reality, these are any quotes in which the US dollar is not used. So, if you’re trading euros for pounds, yen for Canadian dollars or Swiss francs for euros, it will be considered a cross currency quote simply because the US dollar is not being exchanged. Note that if you are in the US, all profits and losses are shown in US dollars through your trading platform no matter which currencies you’re trading (but the quote will show the actual cross currency pair in question).
Prices
In the forex quote, you’ll see a bid and ask price. The bid price means that this is what you’ll take when selling the currency. The ask price applies to buying currencies. They’re formatted similar to the currency pair format, with the bid price before the slash and the ask price after the slash. For example, you might see USD/GBP = 1.5000/05. In this, the bid is 1.5000 and the ask is 1.5005. The difference between the two is the spread, and that’s where the broker makes money.
That’s the basics on reading a forex quote. Understand that pips, or points, are the smallest amounts a price can move in a currency quote. This would be the fourth position to the right of the decimal place. While small, leverage means that thousands of dollars could be gained or lost on virtually any transaction.
By understanding how to read forex quotes, you can make investing a simpler process and ensure better success.
You may Find More Information in : Best Forex Signal Website