How To Decipher Forex Quotes
By Lorna Goldsborough
Learning to read quotes can be a challenge. They present different information than the standard common stock quotes with which most folks are familiar. Should you determine, after spending plenty of time building a trading strategy, that you are ready to enter the trading market, then you need to make sure that you know how to properly read the foreign exchange trading quotes.
The first part of the quote lets the 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 trader currently holds United States Dollars and wants to trade them for Japanese Yen. quotes always begin this way, with the two currencies involved forming what's called the cross.
The second part of 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 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 quotes, function in trading 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 in any number of currencies, the largest numbers of 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 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.
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