FX Quotes - Lesson 2

Before trading forex, an investor has to understand the basic terminology of the forex market, including how to interpret forex quotes. In every foreign exchange transaction, an investor is simultaneously buying one currency and selling another. These two currencies make up what is known as a "currency pair." This is an example of a foreign currency exchange rate of the dollar versus the yen: USD/JPY = 85.32

The currency to the left of the slash ("/") is called the base currency (in this example, the US dollar) and the one on the right is called the quote currency or counter currency (in this example, the Japanese Yen). This notation means that 1 unit of the base currency (that is, 1 dollar) is equal to 85.32 Japanese Yen. If buying, the exchange rate specifies how much you have to pay in units of the quote currency to buy one unit of the base currency; in the above example, you have to pay 85.32 yen to buy 1 US dollar. If selling, the foreign currency exchange rate specifies how much units of the quote currency you get for selling one unit of the base currency; in the above example, you will receive 85.32 Japanese Yen when you sell 1 US dollar.

As with stocks, a forex quote includes a bid price (or bid) and an ask price (or ask). This can be easily illustrated with an example of a currency quote taken from the forex trading software.

In the above example, the bid price for USDJPY is 83.44 yen and the ask price is 83.46 yen. The bid price is the price at which dealers are willing to buy the base currency (in units of the quote currency) and users of our MT4 trading platform can sell. Thus, if a trader wants to "Sell USD," he/she would sell dollars at 83.44 yen. The ask price, on the other hand, is the price at which dealers are willing to sell the base currency and users of our system could buy it. If a forex trader wants to "Buy USD," he would be buying dollars at 83.46 yen.

Even though there are many currencies all over the world, 85% of all daily transactions involve trading a group of currencies known as the "Majors." These currencies include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. The four most actively traded currency pairs are the US Dollar / Japanese Yen (USD/JPY), Euro / US Dollar (EUR/USD), British Pound / US Dollar (GBP/USD), and the US Dollar / Swiss Franc (USD/CHF). The US Dollar / Canadian Dollar (USD/CAD) and the Australian Dollar / US Dollar (AUD/USD) are also actively traded pairs. For traders, the best trading opportunities are with these most commonly traded (and therefore most liquid) currencies.

Taking the example of the Euro-USD forex quote (first pair above), buying one Euro would cost 1.3582 US dollars and selling would provide 1.3580 USD.

If you wish to see live forex quote examples, you can sign up for a free test drive of our MT4 forex trading software by clicking the appropriate link below. You will be able to obtain live forex quotes, as well as place simulated trades in real time using different currency pairs.