Forex Quotes

Forex quotes are at the heart of forex trading. They come in many forms, but all have some basic principles. So let's take some time to learn how to read Forex quotes.

Forex quotes always consist of two currencies, often called a currency pair. An example would be USD/CAD, or US Dollar to Canadian Dollar. The first currency in the pair is called the quote currency, while the second is referred to as the base currency. If a quote for USD/CAD is 1.233, that means that one US Dollar is worth 1.233 Canadian Dollars.

Quotes usually also have two different prices associated with them, the bid and the ask. The bid is the rate used to make a purchase (or a long position), and the ask is the rate you would expect for making a sale (or a short position).

An example quote you might find on a Forex website might be USD/CAD 1.2332/1.2335. This would mean that for 10,000 USD, you could purchase 12,332 CAD (10,000 * 1.2332), but if you immediately wanted to close your CAD position, you would only be able to get 9997.56 USD (12,332 / 12.335).

This is how the forex brokers make their money, since they generally do not collect commissions explicitly. The difference between the bid and the ask price is referred to as the spread, and in many ways is an idea of how expensive a praticular broker is. In general, the lower the spread, the less money you will be losing to the broker. This is an important item to consider when trying to find a broker.

Pips

In the Forex market, traders are always talking about pips. Pips stands for percentage in point, which is equal ro 1/100th of 1 percent, or 0.0001. A price movement from 1.30 to 1.31 would be a movement of 100 pips. The only exception to this rule is the Japanese Yen, in which pip usually refers to 0.01 instead.