HOW TO READ A FOREX QUOTE

Reading a Forex quote is the initial step that a Forex trader has to take before embarking on currency trading. The Forex quote is the basis for all transactions conducted in the Forex market. In the highly volatile Forex market one currency’s strength is pitted against another currency’s strength. In effect, what takes place is the evaluation of one currency in terms of the other. The simultaneous buying and selling of two currencies are depicted in a currency quote.

 A currency quote looks like the following notation:

EUR/USD = 1.2994

What this notation basically tells us is that one Euro is equivalent to 1.2994 US dollars. Any changes to the price from this point onwards will show the pip value for the currency pair according to its volatility in the Forex market.

When reading a currency quote the first currency mentioned therein is known as the base currency. The second currency is known as the quote currency or the counter currency. We can understand according to this currency quote that the Euro is stronger than the US dollar. If the currency quote is accompanied by two prices the reader should understand that the first of these prices is the buying or the bid price while the second is called the ask price and is the selling price. The difference between the bid price and the ask price is called the spread.

A currency quote changes with the change in interest rates. This is reflected in the price change of the currency pair and will accordingly determine the profits and loss of the Forex trade. Traders keeping track of currency pair price movements study the changes in political and economic arenas of the currencies involved in order to understand how they impact the price of the currency pair. These changes are shown in the currency quote.

 It is important to cultivate a true understanding of the currency quote for a Forex trader. He should be adept at gleaning the information behind the currency quote no sooner than he reads it and this will enable him to trade securely and profitably with that knowledge. A trader is able to apply all the Forex trading tools to the currency quote and evaluate its potential for profits or otherwise and trade intelligently with this knowledge to his gain in the long run.