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Understanding Forex Quotes
Reading a foreign exchange quote may seem a bit confusing
at first. However, it's really quite simple if you remember
two things: 1) The first currency listed first is the
base currency and 2) the value of the base currency is
always 1.
The US dollar is the centerpiece of the Forex market and
is normally considered the 'base' currency for quotes.
In the "Majors", this includes USD/JPY, USD/CHF
and USD/CAD. For these currencies and many others, quotes
are expressed as a unit of $1 USD per the second currency
quoted in the pair. For example, a quote of USD/JPY 120.01
means that one U.S. dollar is equal to 120.01 Japanese
yen.
When the U.S. dollar is the base unit and a currency quote
goes up, it means the dollar has appreciated in value
and the other currency has weakened. If the USD/JPY quote
we previously mentioned increases to 123.01, the dollar
is stronger because it will now buy more yen than before.
The three exceptions to this rule are the British pound
(GBP), the Australian dollar (AUD) and the Euro (EUR).
In these cases, you might see a quote such as GBP/USD
1.4366, meaning that one British pound equals 1.4366 U.S.
dollars.
In these three currency pairs, where the U.S. dollar is
not the base rate, a rising quote means a weakening dollar,
as it now takes more U.S. dollars to equal one pound,
euro or Australian dollar.
In other words, if a currency quote goes higher, that
increases the value of the base currency. A lower quote
means the base currency is weakening.
Currency pairs that do not involve the U.S. dollar are
called cross currencies, but the premise is the same.
For example, a quote of EUR/JPY 127.95 signifies that
one Euro is equal to 127.95 Japanese yen.
When trading forex you will often see a two-sided quote,
consisting of a 'bid' and 'offer'. The 'bid' is the price
at which you can sell the base currency (at the same time
buying the counter currency). The 'ask' is the price at
which you can buy the base currency (at the same time
selling the counter currency). |
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| Unfamiliar with forex trading? Visit InterBank
Group's Learning Center
for a wealth of information about the forex market. |
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Basics
Great if you're new to the foreign exchange
market. |
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Pro
A look at sophisticated forex trading strategies and
methods. |
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