Reading Forex Quotes
– Learning how to read forex quotes, and understanding them is a mandatory step to get into forex. In order for you to learn the words of Forex terminology slowly, according to a specific plan, we include a few of them in each article. To be able to read forex quotes, you just need to get a grasp on some forex terminology. In this article, you will learn about this special terminology and you will be able to read forex quotes. So, take a look at these foreign exchange terms below;
Some Terms for Reading Forex Quotes
In a summary, a “forex quote” shows you a “currency pair”, followed by a “bid” and “ask” prices, which will give you the “spread” and how many “pip” there is between the brokers “bid” and “ask” prices. But, what do these terms mean? Let’s see;
– Currency Pairs –
When you look at a forex quote you will see two currencies, a “base currency”, and a “counter currency”, such as; USD/EUD. The first currency, USD in this example, is called “base currency”. The second currency, EUD in this example, is named as “counter currency” or “quote currency”. These two currencies together in this relation is a “currency pair”.
If we look at an example pair:
EUR/USD = 1.2500
In this example, 1 Euro (the base currency) is worth 1.25 US Dollars (the counter currency). Pairs always show the amount of the second currency you can buy with just 1 unit of the first currency. So, it is always “1 to X” format.
You can see the same two currencies in a pair in reverse orientation as well. If we take the previous example, “EUR/USD” again, you can also see these two currencies as “USD/EUR” pair. Although this pair looks different it actually represents the same trade relationship between the same two currencies. Of course with this pair’s value, we are looking at the amount of the Euros you can buy with 1 US Dollar. It should be something like 0.8000, in the same example values.
You can reverse these values by dividing 1 by the pair value, and you will get the value of the reverse pair. In this example, 1 divided by 0.8000 is equal to 1.2500, and 1 divided by 1.2500 is equal to 0.8000.
– Bid and Ask –
Every forex quote has two prices, one for “bid”, another one for “ask”. Let’s have the same pair as an example again;
EUR/USD = 1.2500/05
You can see values like this on forex platforms. This presentation means that the “bid” for this pair is 1.2500, and the “ask” for this pair is 1.2505. This forex quote can be written fully as “1.2500/1.2505” too.
Understanding the “Prices” to Read Forex Quotes
If you are new in forex, you may think that the “bid price” of a currency pair is the price that you will buy the pair, and the vice versa for the “ask price”. However, these terms represent the prices from the forex broker’s side.
Traders, like you, are currency buyers for forex brokers. So, if you want to buy a currency, your broker will “ask” you to pay a price. This is what we call “ask price”. And of course, forex brokers would want to pay less than they sell for when they are buying currencies, so they can make some profit. The price your broker accepts to “bid”, as you already guessed, is what we call the “bid price”. The “bid” and “ask” prices of pair together make the broker’s forex quote for that pair.
So, in the same example case of “EUR/USD = 1.2500/05”, if you want to buy Euros with US Dollars, you will pay 1.2505 USD per unit. And if you want to sell some Euros, your broker’s offer is 1.2500 USD per unit. In fact, reading the forex quotes is as simple as this.
A Few More Words to Read Forex Quotes
– Spreads and Pip –
So, now you should know what “bid” and “ask” are and understand most things you see on forex platforms. However, on those forex platforms and other forex related sources, you will also see some values being spoken of, such as “spread” and “pip”.
Again, if we look at the same example, “EUR/USD = 1.2500/1.2505” forex quote, now you should see that the difference between “bid” and “ask” is “0.0005”. As we explained earlier, this difference in forex quotes is determined by your broker to make themselves some profit. What we call “spread” in forex is this difference amount. Basically, you can see “spread” as the forex broker’s commission in forex quotes.
As you can see, in forex most values that actually matters are under zero by far. For example, in the same “EUR/USD” forex quotes example, the spread is “0.0005”.
In forex, you will see that veteran traders and analysts need to talk about relatively small values like “spread” in forex quotes a lot. Since writing or saying so many zeros all the time is difficult and more prone to mistakes, forex traders use a measurement unit called “pip”. Pip is the fourth number after the comma in a number. For example, the spread from our “EUR/USD = 1.2500/05” example above, is 0.0005, and it is equal to “5 pips”. Similarly, a value of “0.00006” is “0.6 pips”, “0.00043” is “4.3 pips”, “0.0012” is “12 pips”, and “0.00475” is “47.5 pips”.
You Can Learn More to Read Forex Quotes
And, that is it. By learning the terms above, you should be able to read “forex quotes” on forex platforms from now on. In this article, you should have learned a few more technical terms related to Forex. For more detailed explanations on Foreign exchange, you can check other articles on this website or other related websites, by clicking on the related links on this page.
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