The Quote Shows How Each Currency Trades Relative To The Other

Category: Finance, Currency Trading.

If you are new to the world of trading, forex quotes can be pretty confusing. What does a foreign exchange quote look like?

However, it takes just a little know- how, to read them. Look at the following example: EUR/ USD= 2526. Remember that in any forex quote, two currencies will always be present. The above formula shows the foreign exchange rate between the euro and the US dollar. This is because with forex trading, you are buying one currency as you sell another currency. The exchange rate is made up by showing how many units of the quote currency you have to pay in order to buy one unit of the base currency. The first currency listed in a foreign exchange quote is called the" base currency. " The second currency in the formula is the" quote currency. " Therefore, forex quotes show us the relationship between prices for the two currencies in the quote.

The euro is the base currency, and US dollars, above are the quote currency. If you want to buy one euro unit, you will have, therefore to sell 2526 US dollar units. The quote shows how each currency trades relative to the other. Next is the" bid/ ask" spread. Brokers get paid for their work via the bid/ ask spread. The bid/ ask spread is the alternative to broker commissions in the forein exhange market. With the bid/ ask spread added to the above example, it looks like this: EUR/ USD= 2526/ 2528.

Brokers make their money when they sell currencies for slightly more than they buy them. Simplified, it looks like this: EUR/ USD= 2526/ 8. This is legal and every broker does it. When you trade forex, you buy at the bid price, the first price in the above example. However, the spread can differ significantly between brokers. You then sell at the ask price, which is the second price quoted.

In the above example, you' ve bought at 2526 and sold at 252The 0002, goes to the, or two pips broker as payment for executing the trade. The difference between those two prices is called a" spread; " this is what the broker makes as his or her profit on the trade. When you look at it this way, you can see that the bid/ ask spread is relatively simple and straightforward. Tip. It is a relatively easy way to calculate trading fees and expenses. When trading currencies I would recommend that you stick to the seven major currencies.

EUR- the Euro. They are as follows: USD- US Dollar. GBP- British Pound. CHF- Swiss Franc. JPY- Japanese Yen. AUD- Australian Dollar. CAD- Canadian Dollar