For a new forex trader, reading and understanding a forex quote is a daunting task. Even the seasoned and successful forex experts may have different understanding of a forex quote. The quote seems a short note but contains every thing a forex trader needs to know.
Basic Forex Quote Structure
Forex transaction can be quoted in any currency. It has two sides; the above listed currency is called the base currency while the second currency represents the amount required to buy the first currency. It is called counter currency.
Example: A quote of the US dollar and the Japanese yen at 106 is written as USD/JPY 96. It means that one US dollar is equal to 96 Japanese yen. In this example the Japanese yen is counter while the US dollar is the base currency.
In the above example we have shown USD/JPY 96. If it becomes USD/JPY 97 – what does it show? It shows that the value of dollar is rising while the Japanese yen is getting lower in value. USD/JPY – 95 means that the US dollar is getting weaker and the Japanese yen is getting stronger. The understanding of the relationship between the base currency and counter currency is very important for a forex trader. A forex trader can buy either base or counter currency. It means if a forex trader believes that the US dollar is going to rise, he will buy the base currency i.e. the US dollar and if he is thinking in favor of the Japanese Yen, he will buy the counter currency (the Japanese Yen) and sell the base currency (the US dollar). In a Forex Quote the currencies are written in their abbreviations. The trading symbols may seem confusing for a newbie. An experienced forex trader knows and can translate each symbol easily.
Importance of Forex Quote
Why understating of Forex Quote is Necessary for a Forex trader? It is very necessary, because without understanding the forex quote a forex trader can not get an exact situation of the market.
The US dollar is the primary currency of global forex or foreign exchange market. It is accepted as a global base currency for most of the other currencies. The value of other currencies is often shown in their worth in dollar. The trades which do not contain the US dollar as part are called cross currencies or cross trades. Rule for their representation is the same. Example: GBP/JPY 89.1 shows that the one UK pound is equal to 89.1 Japanese yen.
Spread
The amount of pip between bid price and ask price is termed as “spread”. Pip is the smallest measuring unit of spread. It is described by a number written at the right side of the price. Spread shows the difference between bid/ask quote.