Understanding Forex Quotes
Reading a foreign exchange quote is simple if you remember two things:
- The first currency listed is the base currency
- The value of the base currency is always 1.
As the centerpiece of the forex market, the US dollar is usually considered
the base currency for quotes. When the base currency is USD, think of the quote
as telling you what a US dollar is worth in that other currency.
When USD is the base currency and the quote goes up, that means USD has strengthened
in value and the other currency has weakened. Rising quotes mean a US dollar
can now buy more of the other currency than before.
Majors not based on the US dollar
The three exceptions to this rule are the British pound (GBP), the Australian
dollar (AUD) and the Euro (EUR). For these pairs, where USD is not the base
currency, a rising quote means the US dollar is weakening and buys less of the
other currency than before.
In other words, if a currency quote goes higher, the base currency is getting
stronger. A lower quote means the base currency is weakening.
Cross currencies
Currency pairs that don't involve USD at all are called cross currencies, but
the premise is the same.
Bids, asks and the spread
Just like other markets, forex quotes consist of two sides, the bid
and the ask:
The BID is the price at which you can SELL
base currency.
The ASK is the price at which you can BUY
base currency.
What's a pip?
Forex prices are often so liquid, they're quoted in tiny increments called
pips, or "percentage in point". A pip refers to the fourth decimal
point out, or 1/100th of 1%.
For Japanese yen, pips refer to the second decimal point. This is the
only exception among the major currencies.
Source : www.forex.com
