Understanding Forex Quotes

Uploaded by forex on 15.06.2011

Understanding FOREX Quotes
In this short video, you'll learn how to read and interpret a FOREX price quote.
In FOREX trading, currencies are always traded in pairs. That's because you're exchanging one country's currency for another, hence the 'exchange ' in foreign exchange.
So every time you place a FOREX trade, you're buying one currency while simultaneously selling the other currency.
Reading a currency pair quote is simple. You just need to remember two things.
The first currency listed is called the base currency. It's the Euro in this example. The other currency in the pair is called the counter currency. That's the U.S. dollar in this example.
The value of the base currency is always one. For this example, that means one Euro, the base currency, is equal to 1.4621 U.S. dollars.
If the Euro is the base currency and the quote goes up, that means the Euro has strengthened in value, and the U.S. Dollar has weakened.
A rising quote means one Euro can now buy more U.S. dollars than before.
Just like other markets, currency quotes always consist of two prices. The bid is the price at which you can sell the base currency, and the ask is the price in which you can buy the base currency.
To make things easy, you will always see the bid represented on the left, and the ask on the right, on FOREX.com's trading platforms.
The difference between the bid and ask price is called the spread.
In this example, you can buy at the ask price of 1.4626, and sell at the bid price of 1.4624. The difference between the two prices is two pips.
So what's a pip? A pip is the smallest amount by which a currency quote can change.
For nearly all major currencies, a pip represents the 4th digit to the right of the decimal.
For Japanese yen, pips refer to the second decimal point. This is the only exception among the major currencies.
Spreads will vary based on the liquidity of the currency pair. The tighter the spread, the more liquid the currency pair.
Conversely, the wider the spread, the less liquid the currency pair.
At FOREX.com, you can trade on spreads as low as 1-2 pips on the most widely traded currencies.
Continue your FOREX learning with the next video in this series.