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How to Read a Forex Quote

The price of everything is expressed as a currency. A share of Google stock is quoted in U.S. dollars and cents while a barrel of Brent crude oil is displayed in British pounds and pence and a lunch in Tokyo is expressed in Japanese yen.

This quoting convention is second nature to traders and consumers. Similarly currencies are quoted as the amount of one currency it takes to buy another or the amount a seller would receive if he or she sold the currency. Currency pairs are described following market custom with the “base” currency listed first followed by the “quote” currency.

The base currency is the currency being bought or sold. The quote currency is the unit of pricing. For example, the most actively traded currency pair is the EUR/USD. The Euro is the base currency and the U.S. dollar is the quote currency. A quote of 1.100 in this currency pair means it takes 1.100 US dollars to buy one Euro.

Currencies are generally quoted to the equivalent of four decimal places to enable trading in greater precision than the smallest currency unit. For example, EUR/USD is quoted in tenths of a penny.

In the context of currency trading, currency pairs are quoted as a bid, the price at which the currency can be sold and an offer, the rate at which it can be purchased. Active currency pairs, such as the EUR/USD, will generally be quoted with a small difference between the (lower) bid and the (higher) offer. The bid/offer spread will vary depending on the currency pair, market volatility and available liquidity as well as how a trader is accessing the market.

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