Forex quotes simply means the forex currency pairs.
From the above lesson we learnt that currencies are priced and paired. When currencies are priced and paired ,they are known as quotes on the forex market board. This is because they are traded simultaneous with one another, one is bought or sold relative to the other.
Let’s take a look at some of quotes commonly traded on the forex market;
USD/CAD,EUR/USD,GBP/USD,EUR/JPY, USD/JPY, USD/CHF,AUD/USD, NZD/USD, GBP/JPY.
The first currency on the left is the base currency and the one on the right is the counter/quote currency. The base currency is equivalent to 1 unit and the counter/quote currency is that amount 1 unit of the base currency can buy as stated on the exchange rate.
When you decide to buy a pair (going long,) you simply predict that the market will go up in relation to the appreciation of the base currency ,eg if you buy a EUR/JPY pair, the EUR is adding value as you sell the JPY currency which you assume to be losing to the EUR at that price 124.034.
Likewise, while selling the pair, you tend to go short, so you sell 1 unit of the base currency, in this case which is EUR while buying the counter currency which is JPY at 124.036 of the quote currency.
Position taken by a trader.
For one to trade in the foreign exchange markets, you have two options; either to buy or sell whichever works better for you. When you choose to buy, we say you are going long or taking a long position. When you choose to sell then you have gone short; taking a short position.
When taking a sell position/ short, saying the market will go down ie the base currency will lose value in relation to the quote currency and it goes as predicted, you make a profit. The reverse is true if we take the buy position/long position on the currency pair.
The sell position is always taken at a higher price; selling the pair high at a price called the bid price and long postion is taken at a lower price known as the ask price.
The ask and bid price.
When you choose to sell/take the short postion, you use the bid price to sell the currency pair. The bid price reflects how much the market is willing to pay to buy the quoted currency as you sell 1 unit of the base currency. To sell the base currency in exchange for the quote currency, the bid price is the price at which the quote currency is bought in the market. Likewise going high/ buying a currency pair, the price at which the market markers will sell the base currency is the ask price. The bid price is always lower than the ask price.
Bid=buy, ask=sell. Therefore, the bid price is the price at which the trader can sell to the market and ask price is the available price in the market at which a trader can buy from the market. Let’s take a look at an illustration below
Taking a EUR/JPY as our example
The difference between the ask price and the bid price is the spread. For EUR/JPY, the difference between 123.530 and 123.535 is 5 pips which is the spread.
The spread, pips and a lot
You might have been wondering about these small words the moment they appeared to you in our previous statements but not any more. As for me the first time I heard of those words they were so hard nuts to crack but with time you get used to them. When we talk of a spread, this simply means the difference between the bid price and the ask price. The spread covers your transaction costs, brokerage costs and it is calculated using pips.
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