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SPREAD
Understanding FOREX quotes is essential to FOREX trading.
Currency prices are determined by a number of factors, the most important of which are economic and political conditions in the issuing country. Political stability, inflation, and interest rates are all factored into the price of any currency. In addition, governments can try to control the price of their currency by either flooding the market (to lower the price) or buying extensively (to raise the price).
Because of the immense volume of FOREX, however, it is impossible for one force to control the market for any length of time. Market forces will prevail in the long run, making FOREX one of the most open and fair investment opportunities available.
FOREX trading symbols used in the quotes.
Each world currency is given a three letter code which is used in FOREX quotes. The most common currencies are USD (US dollars), EUR (European euros), GBP (United Kingdom pounds), AUD (Australian dollars), JPY (Japanese yen), CHF (Swiss francs) and CAD (Canadian dollars).
Prices of foreign exchange are indicated by FOREX quotes in pairs of currencies. The first currency is the 'base' and the second is the 'quote' currency. In this example:
USD/EUR = 0.8419
...the currency pair is US dollars and European euros. The base currency (USD) is always at '1' and the quote currency shows how much it costs to buy one unit of the base currency. In this example, 1 US dollar costs 0.8419 euros.
Conversely...
EUR/USD = 1.1882
...tells us that it costs 1.1882 US dollars to buy 1 euro.
When the price of the quote currency goes up it indicates that the base currency is becoming stronger – one unit of the base currency will buy more of the quote currency. If the quote currency falls, however, the base currency is becoming weaker.
FOREX quotes are seen in 'bid' and 'ask' prices. Bid is the price that buyers will pay for the base currency (while selling the quote currency), and ask is the price that sellers will sell the base currency (while buying the quote currency).
Symbol Bid Ask
USD/CAD 1.2392 1.2397
This chart tells us that we can buy one American dollar for 1.2397 Canadian dollars, or sell one American dollar for 1.2392 Canadian dollars. The most commonly traded currencies pairs are the 'Majors' – GBP/USD, EUR/USD, AUD/USD, USD/JPY, USD/CHF, and USD/CAD.
We often see exchange rates listed in cross currency charts that list many different currencies and their values against each other. An example of such a chart is seen here:
US $ Ca $ Euro UK L
US $ 1.00000 1.24060 0.83935 0.56870
Ca $ 0.80606 1.00000 0.67657 0.45841
Euro 1.19140 1.47805 1.00000 0.67755
UK L 1.75840 2.18147 1.47591 1.00000
In this chart, the currencies listed down the left side of the chart are the base currencies and the currencies at the top are the quote currencies. We can convert the chart above into currency pairs by following the row beside the base currency. Using US dollars as the base currency we get the following currency pairs:
USD/CAD = 1.24060
USD/EUR = 0.83935
USD/GBP = 0.56870
...which tells us that one US dollar is equal to the corresponding value of the quote currency. To find the opposite pair e.g. CAD/USD follow the Canadian dollar row to the US dollar column - CAD/USD = 0.80606 (one Canadian dollar is worth 0.80606 US dollars).
There is no standard for cross-currency charts – some have the base currency on the top and some have it on the side. How to tell which is which? You need to know at least one pair of currencies and which one of the pair is more valuable.
In the Forex market we are looking at a chart. This chart includes the currency
pair (GBP/USD) as well as Japanese candlesticks. When price moves up we have
a WHITE candlestick forming and when price goes down we have a BLACK
candlestick forming.
Price is also located on this chart at the right hand section of the chart in order
for you as a trader to identify where price is currently on the chart and where price
was previously on the chart.
Date and Time is also located at the bottom section of every chart which enables
you as a trader to determine currently and in the past where price was located and
where price may actually be in the future.
When price moves UP or DOWN we are accustomed to price moving in pennies; e.g. $1.99 to $2.00 as the smallest form of denomination. In forex the smallest denomination is a pip (price interest point).
When price moves from 1.9000 to 1.9001 that means it has moved by one pip. This price is seen on every currency pair chart and is located on the right hand section of the chart.
When price moves from $1.9900 to $2.0000 price has moved 100 pips and that equals one penny.
Lots are similar to shares in the stock market.
E.g. GOOGLE shares are worth $3.00 each - I want to buy 10 shares –
this will cost me $30.00
A Lot is synonymous to a CONTRACT or SHARE in the Equities Market
In FOREX we determine how many LOTS we can trade by establishing how
much money we have and how much we can risk per trade.
The Brokerage Companies advertise that there are different accounts available:
SUPER MINI = each pip is worth 0.10c per LOT and allows the trader to
control $1,000
MINI = each pip is worth $1.00 per LOT and allows the trader to control $10,000
STANDARD = each pip is worth $10.00 per LOT and allows the trader to
control $100,000
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