How To Read A Forex Quote
If you don’t know how to read a Forex quote, then you could very well put your trading account in jeopardy.
A Forex quote is the price of one currency in terms of another currency. These quotes always involve currency pairs because you are buying one currency by selling another.
In this article we’ll over over the various aspect of a quote and what you need to know when learning to read a Forex quote.
The Currency Pair
A currency pair is two currencies that are traded against each other on the Forex market. One of the is the Base Currency, and the other the Quote or Counter Currency.
We are going to focus on the EUR/USD pair in this article. The EUR would be the Base Currency and USD the quote/counter currency. (Note: We’ll use ‘Quote Currency’ here on out.)
What Do The Prices Mean?
Learning to read a Forex quote is actually quite simple. It’s just a matter of know what the symbols mean (EUR/USD for example) and what the number stands for.
Let’s go back to our EUR/USD example. EUR would be the base currency and USD would be the quote currency. If you see the price for EUR vs. USD listed as 1.15, then you could purchase $1.15 (US Dollar) for every €1 (Euro.) As the value of this pair fluctuates, you will see the price move up and down.
In Forex trading, currencies are always quoted in pairs – that’s because you’re trading one country’s currency for another.
The Extra Numbers
In the example above I used 1.15, but when you start to look at the charts you will see the price listed as 1.1539. In Forex the prices are quotes in PIPs or Percentage in Point. In all pairs except Japanese Yen (JPY) pairs, there are 4 digits used after the decimal point. For Japanese Yen pairs only 2 digits are used after the decimal point.
As you read a Forex quote, you’ll want to pay attention to the PIP value of a trade. If entered a trade on the EUR/USD pair at 1.1567 and sold it at 1.1597, it would be a 30 PIP difference. It could be a 30 pip gain or loss depending on if your trade was a buy or a sell.
Due to the fact that the U.S. dollar is regarded as the central currency of the Forex market, it is constantly dealt with as the base currency in any Forex quote where it is among the sets.
Contract For Differences
The Forex market is really the Contact for Differences market. What does this mean? Let’s take a look at the anatomy of a trade and see what is going on.
If you were to place a buy on EUR or the Euro (base pair) vs USD or the US Dollar (quote pair) at 1.1567 you have essentially purchased a contract for the difference of 1.1567 and the price you eventually close the trade at. If the price of your buy closes at 1.1667, then you would have a profit of 100 PIPs. Conversely if the price of your buy closes at 1.1467, then you would have a loss of 100 PIPs.
Let’s look at another example. If you were to place a sell on GBP or the Great Britian Pound (base pair) and USD (quote pair) at 1.2854 you would have bought a contract at 1.2854 verses the price you close the contract at. Thus if the pair closed at 1.2754 you would have a profit of 100 PIPs. If the pair closed at 1.2954 you would have a loss of 100 PIPs.
Summary
When you read a Forex quote, know that a price quote of USD (base currency) vs CAD (quote currency) means that you could purchase 1.32 CAD (Canadian Dollar) with every 1 US (US Dollar.)
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