Forex Quotes

Currencies are quoted in pairs, such as EUR/USD or USD/JPY. The first listed currency (to the left) is known as the base currency, while the second (to the right is called the counter or quote currency. Therefore, if you are trying to determine the exchange rate between the U.S. dollar (USD) and the Japanese yen (JPY), the forex quote would look like this: USD/JPY=117.00

The base currency (in this case, the U.S. dollar) is always equal to one unit and the quoted currency (in this case, the Japanese yen) is equal to one unit of the base currency. The quote means that US$1=117.00 Japanese yen i.e. US$1 can buy 117.00 Japanese yen. The forex quote includes the currency abbreviations for the currencies in question.

Direct Quote and Indirect Quote

The Currencies can be quoted directly or indirectly. In direct currency quotes, the domestic currency is the base currency and indirect currency quotes the domestic currency is the quoted currency.

Most currency exchange rates are quoted in four digits after the decimal place, with the exception of the Japanese yen (JPY), which is quoted in two decimal places.

Cross Currency

When a currency quote is given without the U.S. dollar as one of its components, this is called a cross currency. The most common cross currency pairs are the EUR/GBP, EUR/CAD and EUR/AUD. These currency pairs expand the trading possibilities in the forex market, but they are not as actively traded as pairs that include the U.S. dollar.

Bid Price and Ask Price

The bid price is used when selling a currency pair (going short) and reflects how much of the quoted currency will be obtained when selling one unit of the base currency.

The ask price is used when buying a currency pair (going long) and reflects how much of the quoted currency will be required for buying one unit of the base currency.

The quote before the slash is the bid price, and the two digits after the slash represent the ask price (only the last two digits of the full price are typically quoted). The bid price is always smaller than the ask price.

Example:

USD/CAD=1.1500/05
Bid Price=1.1500
Ask Price=1.1505

Buying this currency pair, means that the base currency is bought and the ask price will be used. According to the ask price, 1.1505 Canadian dollars will be required to buy one U.S. dollar.

Selling this currency pair, or sell the base currency in being sold and the bid price will be used. According to the bid price, one U.S. dollar will buy 1.1505 Canadian dollars.

All transactions are conducted in base currency i.e. the base currency is either bought or sold.

Spreads and Pips

Spread is the difference between the bid price and the ask price. In the above example .0005 is the spread.

The pip is the smallest amount a price can move in any currency quote. In the case of currencies quoted in four decimal places, one pip would be 0.0001 and it would be 0.01 for currencies is quoted in two decimal places. In the above example the spread is 5 pips.