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How to
Read A Forex Quote
If you’ve
only recently begun trading currencies or doing business on
the forex market, reading forex quotes can get to be rather
confusing. There are numbers and symbols everywhere, and the
fact that everything’s an abbreviation or an acronym doesn’t
help one bit. Once you get used to the basics, though, you’ll
begin reading forex quotes as if it was your mother language.
That’s just the thing – you have to get used to the
basics.
Dissecting
Forex Quotes
Forex quotes
usually look like USD/JPY = 117.826. You’ve got to admit,
it’s rather intimidating to read at first. It’s very
simple, though, because forex quotes have just three basic parts,
namely the base currency, the quote currency and the price.
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The base
currency – the first one in the pair – is your
‘reference’ currency. That means the quote expresses
the value of any other currency relative to your base or reference
currency. In this example, your base currency would be USD,
which is the norm for most major forex traders.
The quote
currency – the second one in the pair – is the
currency that you’re looking at or intending to trade.
In this case, you intend to trade your US dollars with Japanese
Yen. The price – the number at the end of the quote –
is how much of the quote currency you can buy with one unit
of the base currency. You would thus interpret the sample quote
as your US$1 being able to buy 117.826 Japanese Yen.
When the
number goes down, you end up with a loss because your base currency
– the one you’re using to trade in the first place
– is able to buy less of the quote currency than before.
On the other hand, if the number goes up, you would’ve
made a profit because your base currency can buy more of the
quote currency that it could do before.
Simple
Spreading
You’ve
probably also heard of the word ‘spread’ in the forex
market, and incorporating that term into the quote can complicate
matters if you’re not used to reading quotes yet. Simply
put, spreads are the differences between the selling price and
the buying price of a certain currency. Brokers put in this
difference so that they’re able to make some money every
time you do forex transactions money with them.
In most
cases and countries, spread is usually represented as a slash
after the ten hundredth decimal place. The first value –
the one using the digits after the slash – indicates the
price at which you sell. The second value – the one using
the digits after the slash – is the price at which you
sell a certain currency.
Don’t
let all the numbers and the symbols fool you. Once you get the
basics down pat, you can put more of your energy into what really
matters: trading forex.
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