How to Easily Understand Forex Quotes
There’s a lot of jargon in Forex quotes. Lucky for you, we’re breaking it all down so it’s nice and simple. Read on to increase your profits.
There’s a lot of jargon in forex quotes but there’s a lot to be gained from forex trading!
In addition to free tools and guides, it’s essential to parse and understand this jargon before you trade.
Today, we’re going to define forex quotes and its elements: the quote name, the quote value, and the spread.
Let’s get started on increasing your profits.
Forex Quote can be defined as the price at which one currency can purchase another currency.
That’s a simple definition. So simple that without context, it doesn’t mean anything.
To understand the forex quote definition, I’ll show you a quote and name its parts.
These are two different currency codes, also known as ISO codes. When there are two currency codes separated by a forward slash this is called a currency pair.
These codes mean European Union euro and United States dollar respectively. Commonly used codes are typically made up of the first letters of a country or region’s name followed by the first letter of that country or region’s currency.
In any forex quote, the first currency is the base currency and the second currency is counter currency. Above, the value of the EU euro (base) is displayed in US dollars (counter).
Now that you can name each part of the quote, what can be interpreted from it?
When you interpret the quote value, you’re reading the price. At this stage, the first number is the bid price and the second number is the ask price.
The currency price is 1.0685/1.1129 for EUR/USD at this stage. This currency price can be read,
“If you are selling, one EU euro is worth 1.0685 US dollars. If you are buying, it is worth 1.1129.”
The base currency is always smaller in value than the counter currency.
With experience trading with currency pairs like GBP/USD, USD/JPY, USD/CHF, and EUR/USD you will be able to read the quote and make a choice whether or not to make the trade!
The spread is the simplest of the forex quotes elements introduced so far. The spread of a forex quote is the bid-ask difference of the currency price.
Here the difference between the bid, 1.08796, and the difference between the ask, 1.08799, is .00003
What value does this hold for you, the trader? This means that there is a 0.3 pips difference between the buy price and the sell price for that currency pair.
More on Forex Quotes and Trading
The Forex market is liquid in nature. So, a quote like the one listed above can represent the true value, but perhaps only for a fraction of a second.
By the time you make a decision to trade, the value could be different. But usually, unless the market is in a frenzy, the value should not have changed too much in a few seconds.