Do you want to start trading? If yes, then one of the first things you should learn is reading a forex quote. However, it is very easy but still, some people don’t know how to do it. So if you also have any confusion regarding the forex quote, then this article will teach you how to read a forex quote properly. Now without wasting any time, let’s get started.
Currency pairs explained
How do currency pairs work? A currency pair is a pair of two different currencies, the first currency is called as a base and the second currency is called a quote. Market convention currency pairs rule is that the price of the base currency is always calculated in units of the quote currency. Currencies as AUD (Australian Dollars), USD (US Dollars), JPY (Japanese Jen), GBP (British pounds), and EUR (Euros), Canadian dollar (CAD) are mostly used as base currencies. Coming to the quote currency, it can be any other commonly used base currency.
In this example, the base currency is EUR and the quote currency is USD. This example is showing the worth of 1 Euro is 1.33 dollars. The base always equals to 1 no matter what currency you use. A comparison of these two currencies is called forex convention, the base will be EUR. On the flip side, if the base is USD, the (USD/EUR = .7519) would be the quote.
How to read currency pairs – Bid and Ask Quotes
A forex quote is the price of one currency in terms of another currency and has two parts, which are a bid and an ask. To help you understand better, here is another example – EUR/USD = 1.3300/05.
So how to read forex numbers in this case?
In this example, 1.3300 is the bid and 1.3305 is the ask. Though if you view them in regular circumstances, then the difference between them is not high. Coming to the convention, it is the last 2 numbers of the given four trailing numbers. Now it would spell-like EUR/USD = 1.3300/1.3305 where 1.3300 is the bid price and 1.3305 is the ask.
The difference between the base and quote currency is that the first currency in this currency pair is referred to as the base currency and the second currency is called the quote currency and the price of the base currency is always calculated in units of the quote currency.
Forex quotation – Knowing Bid and Ask Meaning
Now if you are thinking that the bid is the price that you will pay to buy a currency pair, then you are highly mistaken. However, you should look at these from the forex broker’s perspective. Since you want to buy the stuff, so you won’t pay the bid, instead, you will pay the ask (3.3605). On the other hand, you would accept the bid (3.3600.) made by the broker if you were selling.
Spread is the term that is used to refer to the difference between the bid and the ask. The commission that the broker takes is called a spread.
Spreads and Pips
Pip is one of the most common terms in forex contexts. When it comes to forex currency quote, the smallest unit (of value) is called a pip. For example-
EUR/USD = 1.3300/1.3305
In this example, we have 5 pips and it is the difference between base and quote currency. As you know the bid price is the first number, which is 1.3300 and the second number is the ask, which is 1.3305. So 5 pip is the spread in this example.
In the past few years, forex trading has become very popular and millions of people are connected with it and making a lot of money. Because of its amazing return on investments, many new people are coming to this industry in the hope that they will also make huge money. So if you also want to get successful with forex trading, then you must learn all the basic first. All the important information related to the forex quote is mentioned above. Hope this article will clear some of your doubts.