Forex quotes are what tells the trader most of what they need to know about a prospective transaction, such as what currencies are offered, how much they cost, and how much they are worth in comparison to each other. It is critical for traders to understand how to read Forex quotes accurately, because without them the trader will lose money. Here are the basics to know what Forex quotes are trying tell traders and why they should pay attention to it.
What Currencies are Offered
The first that the trader should notice in a Forex quote is the two currencies involved in the potential transaction. A base currency is listed first, represented by three letters, and this is the domestic currency in a direct quote and the foreign currency in an indirect quote. The counter currency is listed second, also represented by three letters, and it is the foreign currency in a direct quote and the domestic in an indirect one. Some platforms list a quote as currency/currency, but others leave off the backslash. For instance, if the U.S. dollar and euro are being traded, the platform may list the transaction as USD/EUR or as USDEUR, depending on the trading platform .
How Much They are Worth
The base currency is represented as 1 in the Forex quote, and the quote will offer the value of the counter against the base. For instance, for the above mentioned quote, if it is listed as 1.0312 it indicates that the value of 1 USD is 1.0312 EUR. This could indicate the perfect time to buy, sell, or trade a specific currency, depending on the opinion of the trader and his/her long-term goal.
How Much They Cost
Finally, one of the more important facts to learn when discussing how to read Forex quotes is how much the currencies cost in a transaction. These are called bid and ask prices, and the bid will always be lower than the ask in a Forex trading. The bid is the amount that it costs to buy the currency pair, and the ask indicates how much it costs for the trader selling the pair. The difference between the two prices is the potential profit margin for a trader, and the bigger the difference the more profit may be obtained.