Understanding Forex Quotes
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. Do not overlook any part of a quote, as each portion carries a unique significance and valuable information.
There are several lines of information included in forex quotes. The top line indicates some very basic, but crucial, information. In the same way that a common stock quote begins with a company’s ticker symbol, a forex quote begins by identifying the currencies that would be involved in the trade. For instance, if a forex trader saw a quote that began USD/JPY then he would immediately know that the quote is using US Dollars to buy Japanese Yen. If the quote read JPY/USD then the Yen is the base currency that is being used to buy US Dollars.
The second part of forex quotes that you need to look at is the pricing portion of the quote. To continue the example from above, if the quote read USD/JPY=117.57, then the trader knows that for every 1 US dollar he trades, he will get 117.57 Japanese Yen in return. While that may seem really simple, there are a few more details of these quotes that the forex trader needs to take note of before making the foreign exchange trade.
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 trading forex much the same way. The bid price is the price at which you can sell the currency. In other words, that is the price that people are willing to pay for it. The buy price is what you will have to pay if you want to buy the currency. There is usually a difference between these two numbers, but it is seldom substantial.
While it is possible to trade forex in any number of currencies, the largest numbers of forex quotes that are traded every day involve what are known as the majors. The US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar make up more than 85% of all forex trades. These currencies make up the most stable markets in the world and carry the most volume. These facts make them the safest foreign exchange currencies to trade. It is not likely that you will end up holding huge amounts of worthless money.
Published by M. B. Aria
