How to Read Forex Quotes


There are many technical terms associated with foreign exchange trading. These terms are very important to forex trading and the information is also crucial for every trader.

Two such important terms are "quotation" (as in forex quotes) and "spread". forex quotes deal with the "ask" price of any given currency pair at a certain point in time. The word "quote" is used in almost all kinds of businesses and stands for an approximate market price. Most foreign currency forex quotes are given in pairs. Forex trading works only with currency pairs like the USD/EUR. Now the USD is the base currency while the EUR (Euro) is the quote currency. The world's financial wholesale markets quote a currency using 5 different yet important numbers. The last number is known as the pip.

Typically, forex quotes come with two kinds of prices; the bid price, and the ask price. The quotations for both prices are sent in real time and, as a result, the Forex market is able to ensure that all traders will receive a fair price while doing a transaction.

Like all trading markets, the forex market also has an immediate cost attached to establishing a position. Let's take an example: If the USD/AUS bid is at 131.40 and the ask price is at 131.45, then there is a five-pip spread. This spread will define the trader's cost. To a layman, a forex quote might sound 'double-dutch', but in reality it is very simple.

There are two very important things to remember and they are: The base currency, which is the first currency, and the value is always 1. The most important currency or the heart of the Forex market is the US Dollar.

In a quotation-involving the USD as one of the currencies in a pair, it will always be referred to as the base currency. If there is a quote for a currency pair of USD/JPY and if the value is 160.25, then it means that $1 is equal to 160.25 Yen. If there is a currency pair which has the USD as the base - and if there is a rise in the currency quote - then it would translate into an appreciation of the USD and depreciation of the secondary currency.

Like the last example, if the quote for the USD/JPY pair increased to 169.35, then that means that the Dollar is stronger. It also means that $1 can now buy 169.35 Yen. There are only three exceptions to this rule and they are the Australian Dollar, the Euro and the British Pound. If the Dollar is paired with the Pound, and the quote for GBP/USD shows 2.3647, then it means that 1 Pound is equal to $2.3647. In such pairs the US Dollar is not the base currency and a rising quote would mean that the US Dollar is depreciating.

The third type of currency pair is the cross currency. This combination doesn't use the US Dollar. An example would be the AUD/JPY. In such a scenario, the Australian Dollar would be the base currency.

Hopefully, that demystifies things a little for you.


About the Author

Scott is the founder of www.itradeallday.com a community site for the active forex trader.