Reading a forex quote can be confusing at first, but it will get easier in the end when you get used to it. The main challenge that you need to deal with is to become familiar with the different terms associated with quoting. Primarily, symbols that use three letters are used to identify and distinguish different currencies around the world.
Buying one currency and selling another is always done simultaneously in any forex transaction. The two currencies involved in the foreign exchange transaction make up the currency pair. To select the current pair, select the base currency first, followed by the quote currency or counter currency. A slash can also be found between the two currencies. Two prices will also be published. The first is the bid or ask price and the second will be the ask price. Similar to a currency pair, a slash should also be deployed between the two prices. To indicate the bid price, only the last two decimal places will be published.
An example of foreign exchange rates would be USD/JPY 119.68/75. Here, the US dollar is the base currency, while the quote currency is the Japanese yen. Thus, this foreign exchange quote model indicates how many Japanese yen you will get for selling one unit of the base currency, the US dollar. The bid or ask price is set at 119.68, while 119.75 acts as the ask price. In this foreign exchange rate model, the trader would like to sell 1 US dollar for 119.68 Japanese yen. Meanwhile, the trader is also willing to buy 1 US dollar for 119.75 Japanese yen.
Other important concepts in foreign exchange transactions that you should be aware of are “spread” and “pip”. The spread refers to the difference between the bid or ask price and the ask price. Points are 0.01 small units. In our example of USD/JPY 119.68/75 mentioned earlier, the spread is 7 pips. Small pips are common among currencies that are commonly used in trading. A single point spread is also a possibility due to intense competition. Small spreads are not automatically proportional to losses or profits.
In forex trading, a group of “majors” currencies are the US dollar, Japanese yen, euro, British pound, Swiss franc, Canadian dollar and Australian dollar. Meanwhile, USD/JPY, EUR/USD, GBP/USD, and USD/CHF are the four most actively traded currency pairs. . Traders usually prefer to trade with the major currencies because these currencies are also highly liquid.
When understanding currency rates, a number of factors such as the economic and political issues of the country must also be taken into account. Issues such as political stability and inflation will have a significant impact on currency rates.