How to Read Forex Quotes

Before I deliberate on Forex Quotes, let me first update you on forex pairs and forex symbols. Let us not delve further into the history of how the currency pairs have evolved and standardized in the forex trading system.

Forex Symbols

There are seven most active currencies on the forex trading markets, besides number of other currencies that are traded sporadically.

1. US Dollar – USD
2. European currency – EURO
3. Japanese Yen – JPY
4. British Sterling Pound – GBP
5. Swiss Franc – CHF
6. Australian Dollar – AUD
7. Canadian Dollar – CAD

Forex Pairs

The term Forex pair may sound intriguing to those of you who are used to stock trading. Why forex in pairs? Well, even in stock trading, indirectly you are trading a pair. When you buy a stock, you are selling your money and vice versa. Similarly when you are trading forex you are buying once currency and selling the other currency. EURO/USD, USD/JPY, GBP/USD and USD/CHF are the most traded forex pairs that churn out the bulk of the daily trillion dollars turn over in global forex trading.

On any forex trading platform, you will find that almost half of the screen is occupied by flashing figures of forex quotes. Dealing rates is the alternate term often prescribed for forex quotes. Prima-Facie you may feel that it is very easy to read forex quotes. However if you are a novice, you may land up with a buy trade instead of a desired sell trade. I would suggest that you must thoroughly understand how the forex rates are quoted on the forex trading platforms.

Let us study an example of USD/JPY

There are essentially two aspects. The first aspect relates to the exchange rate and the second aspect relates to the forex quote as appearing on the screen of forex trading broker.

• The forex quote USD/JPY = 108.09 is in reality the exchange rate. Here in this quote, the first currency USD is termed as the base currency and the second currency JPY is termed as the quote currency. Thus for buying one unit of the base currency you have to pay 108.09 units of quote currency.
• If you see the forex quote for USD/JPY on the online forex trading software, you will find two separate quotes. USD/JPY Sell =108.07 and USD/JPY Buy=108.10. Offline forex trading brokers will quote USD/JPY = 108.10/108.07. The first price is the bid price and the second price is the ask price. Does it not sound confusing? Well, it is, but till the time you get used to the system. Here is where the concept of bid/ask spread comes into picture.

In the present example, as a part of forex trading, if you wish to buy USD/JPY pair, you will buy at the bid price 108.10. However if you want to sell USD/JPY pair, you will sell at the ask price 108.07. In reality the forex trading broker has sold you USD/JPY pair at 108.10 and bought it at 108.07. The small difference of 0.03 (3 pips) called as bid/ask spread is the profit for the broker who does not levy any additional fees or commissions on the trades executed for you.

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