When talking about currency, Forex appears as an important part. Forex trading is growing fastly and many investors are gaining interest in this trading. But, investing in forex requires some pre-learning for smooth and profitable trading. In this article, we will learn how to read the Forex Quotes. Forex Quotes basically reflect the price of currencies. The trader’s profit and loss depend on quotes fluctuation, that is why it is important to understand them.
What are Forex Quotes?
Forex Quotes can be defined as the price of one currency in terms of another currency. As you are buying a currency and selling others, that’s why Quotes become important.
Understanding Forex Quotes
There are some fundamentals of Forex Quotes, lets have a look:
- ISO Code
ISO stands for International Organisation for Standardization which is responsible for developing and publishing international standards and apply to global currencies. Each country’s currency has an abbreviation of 3 letters like EUR for Euro, USD for US Dollar, and INR for Indian Rupee.
- Base currency and variable currency
The Forex Quotes shows 2 currencies, First one is the base currency and the second one is the variable currency. The first currency price is always depicted in second currency units.
Bid and Ask Price
While trading forex, the currency pairs have 2 different prices- Bid price and Ask price. Bid price is the price at which the traders sell currency and Ask price is the price at which the traders buy the currency.
Traders always buy forex when the price is low and sell when the price is high.
Naturally, the price of selling the currency will be higher than the price of buying it. The difference is called the spread. Brokers earn through spreads. Major currencies are high trading and more liquid which is why their spreads are low.
Direct Vs Indirect Quotes
Quotes are always shown according to the home currency. If you are residing in the US and looking forward to buying Indian Rupee, The Quote will be INR/USD. It will be relevant for US people as the quote is in USD. This is the direct quote.
In the Indirect quote, it shows 1 unit value of the home currency in terms of foreign currency. These are usually used to convert the purchased currency into home currency.
Tips for Reading Forex Quotes
- Bid and Ask are the prices from the broker’s perspective. Traders buy at the asking price and sell at the Bid price.
- When you see a currency pair, the first is the base currency and the second is the quote currency.
- One pip is the smallest movement of non-JPY currency pairs.
- Traders find the spreads as the initial hurdles in forex trading.
Forex Trading is in trend and many traders are looking forward to trying their luck in this field. Before starting, it is important to know some of the fundamentals of forex trading and the Quotes reading is the most important one. If you can read and understand the quotes properly, you will easily trade.