How to read Forex Quotes

When reading a quote of Forex, you need to look for two specific numbers, the base and the quote.

Typically, a Forex quote will appear in the following format:

USD JPY 1/97.42

The number on the left of the slash is the base number. The base is always “1″ and represents, in this case, the US Dollar. The second number represents how much of another currency, in this case the Japanese Yen, can be bought for US$1. In this quote, $1 is worth ¥97.42.

When the number increases, it means that the US$ has strengthened against that particular currency. In other words, $1 would by you more of that currency than before. Conversely, a falling number indicates that the dollar has weakened against that currency.

Bid, Ask and Spread

When trading on Forex, you will be presented with two quotes; the ‘bid’ and the ‘ask’.

The ‘bid’ is the price at which you can sell the base currency whilst the ‘ask’, which is the higher number of the two, is the price that you buy the base currency. The difference between the two numbers is known as the ’spread’, and this represents the cost of trading on Forex markets. For example, in the quote EUR/USD = 1.2500/03, the ‘bid’ states that one Euro can be sold for $1.2500 whilst the cost of buying €1 (the ‘ask’) would be $1.2503. The spread is 0.0003.

Whilst the difference looks minimal, and indeed, Forex spreads are small, the nature of the market means that even the smallest change, known as a ‘pip’, can make a significant difference, with the majority of currencies experiencing around 100-150 pips per day.

The pip is the smallest amount a price can move in any currency quote. In the case of the U.S. dollar, euro, British pound or Swiss franc, one pip would be 0.0001. With the Japanese yen, one pip would be 0.01, because this currency is quoted to two decimal places.

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