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A Guide to Desiphering Forex Quotes
Article Summary: Unlike traditional stock quotes, forex quotes can be rather tricky to decipher when you are just learning the business of foreign exchange trading. If you have decided that you want to try developing a forex trading strategy, then the first step is learning how to read these quotes. This article will guide you through the process.
The first time that many people pull up forex quotes and try to make sense of them can be confusing for those who are only familiar with common stock exchange quotes. The only real similarity between common stock quotes and forex quotes is the nature of the information that they provide. While a forex quote does, ultimately, tell you the price, it is not as cut and dry and it would be with common stock and requires a bit of interpretation.
The first part of the quote lets the forex trader know which currency is involved. The nation listed first is referred to as the base currency. This means the trader currently holds that currency and he is using it to buy the quote currency, sometimes called the trade currency. For example, a quote that reads USD/JPY means that the forex trader currently holds United States Dollars and wants to trade them for Japanese Yen. Forex quotes always begin this way, with the two currencies involved forming what's called the cross.
Quick fact : The Forex market is by far the largest financial market in the world, and includes trading between large banks,central banks, currency speculators,multinational corporations, governments, and other financial markets and institutions.
The second part of forex quotes that a person needs to pay attention to is the pricing portion of the quote. To continue the example from above, if the quote reads USD/JPY=117.57, then the trader knows that for every $1 (USD) he trades, he will get 117.57 Japanese Yen (JPY) in return. While that may seem really simple, there are a few more details of these quotes that a forex trader needs to take note of before making the trade.
Did you know that the average daily trade in the global forex markets currently exceeds US$ 2-2.5 trillion !
Following the initial line of the quote, which contains the two currencies that form the cross and the exchange rate, is another line of information. This is probably more familiar to common stock traders. Bid prices and ask prices, which make up an integral part of forex quotes, function in forex much the same way. The bid price is the price at which a trader can sell the currency or in other words, that is the price that people are willing to pay for it. The buy price is what a trader will have to pay if he wants to buy the currency. There is usually a difference between the bid and the buy numbers, but it is seldom substantial.
Most of the examples of forex quotes that you will see as you visit different forex trading platforms across the internet will involve some mixture of the Canadian Dollar, US Dollar, Australian Dollar, Euro, Japanese Yen, and Swiss Franc. The reason for this apparent dominance is that nearly 85% of all real forex quotes involve the currencies of these six nations. These are without question the most stable economies in the world market and are least susceptible to recession and market crashes. This knowledge gives forex traders the confidence to buy and sell national currencies without reservation.
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Konstantin Volegna
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