Forex Quotes

Unlike traditional stock quotes, forex quotes can be rather tricky to decipher when you are just learning the business of foreign exchange trading. If you have decided that you want to try developing a forex trading strategy, then the first step is learning how to read these quotes. Do not overlook any part of a quote, as each portion carries a unique significance and valuable information.

Learning to read forex quotes can be a challenge. They present different information than the standard common stock quotes with which most folks are familiar. Should you determine, after spending plenty of time building a forex trading strategy, that you are ready to enter the forex trading market, then you need to make sure that you know how to properly read the foreign exchange trading quotes.
 
The first time that many people pull up forex quotes and try to make sense of them can be confusing for those who are only familiar with common stock exchange quotes. The only real similarity between common stock quotes and forex quotes is the nature of the information that they provide. While a forex quote does, ultimately, tell you the price, it is not as cut and dry and it would be with common stock and requires a bit of interpretation.

The first part of the quote lets the forex trader know which currency is involved

The nation listed first is referred to as the base currency. This means the trader currently holds that currency and he is using it to buy the quote currency, sometimes called the trade currency. For example, a quote that reads USD/JPY means that the forex trader currently holds United States Dollars and wants to trade them for Japanese Yen. Forex quotes always begin this way, with the two currencies involved forming what's called the cross.

There are several lines of information included in forex quotes. The top line indicates some very basic, but crucial, information. In the same way that a common stock quote begins with a company's ticker symbol, a forex quote begins by identifying the currencies that would be involved in the trade. For instance, if a forex trader saw a quote that began USD/JPY then he would immediately know that the quote is using US Dollars to buy Japanese Yen. If the quote read JPY/USD then the Yen is the base currency that is being used to buy US Dollars.

The most elementary piece of information found in forex quotes simply serves to identify what is on the trading block. Forex traders buy and sell money. With this in mind, take a look at some forex quotes and you will see that every quote begins with what's called a cross. This is the amalgam of the two currencies that are involved in the trade. For example, a quote that reads USD/JPY means that the forex quote is valid for someone who wants to use United States Dollars to buy Japanese Yen.

The second part of forex quotes that you need to look at is the pricing portion of the quote

To continue the example from above, if the quote read USD/JPY=117.57, then the trader knows that for every 1 US dollar he trades, he will get 117.57 Japanese Yen in return. While that may seem really simple, there are a few more details of these quotes that the forex trader needs to take note of before making the foreign exchange trade.

Following the initial line of the quote, which contains the two currencies that form the cross and the exchange rate, is another line of information. This is probably more familiar to common stock traders. Bid prices and ask prices, which make up an integral part of forex quotes, function in trading forex much the same way. The bid price is the price at which you can sell the currency. In other words, that is the price that people are willing to pay for it. The buy price is what you will have to pay if you want to buy the currency. There is usually a difference between these two numbers, but it is seldom substantial.

While it is possible to trade forex in any number of currencies, the largest numbers of forex quotes that are traded every day involve what are known as the majors

The US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar make up more than 85% of all forex trades. These currencies make up the most stable markets in the world and carry the most volume. These facts make them the safest foreign exchange currencies to trade. It is not likely that you will end up holding huge amounts of worthless money.

There are over sixty currencies listed on most major forex trading platforms. As you look through the majority of the forex quotes actually traded though, you will notice that over 85% of them include some combination of the US Dollar, Japanese Yen, Euro, Canadian Dollar, Swiss Franc and the Australian Dollar. Known as the majors, these six currencies constitute the backbone of foreign exchange trading. Historically, they are the most heavily regulated, and as a result, the most stable currencies in the world. This stability makes them safer investments than some other currencies. The feeling of security by investors results in the much higher trade volumes.

Most of the examples of forex quotes that you will see as you visit different forex trading platforms across the internet will involve some mixture of the Canadian Dollar, US Dollar, Australian Dollar, Euro, Japanese Yen, and Swiss Franc. The reason for this apparent dominance is that nearly 85% of all real forex quotes involve the currencies of these six nations. These are without question the most stable economies in the world market and are least susceptible to recession and market crashes. This knowledge gives forex traders the confidence to buy and sell national currencies without reservation.