It is clear now that the Forex Market is the largest market in the world. The broker or institution that you trade with collects information on currency quotes from a centralized feed or individual quotes comprising of INTERBANK rates.
So, what are quotes? Well I have discussed previously, "What currencies are traded, and What are the most common pairs?".
You will normally see the USD being quoted in front with a few exceptions such as the Pounds Sterling, Euro Dollar, Australia Dollar and New Zealand Dollar. The first currency quoted is called the base currency.
Look at Forex quotes, you will normally see two numbers. For example, EURUSD, you might see 1.4231/1.4233. The first number is referred to as the Bid or the Buy Price while the second number is referred to as the Ask or the Sell price. So, when you want to buy the Euros against the US Dollars, you are prepared to buy (or go Long) at 1.4231. The reverse is the same. When you want to sell the Euros against the US Dollars, you are prepared to sell(or go Short) at 1.4233. The currency quotes are the price that you as a trader are willing to pay for your trades. One of the other typical way of displaying quotes is 1.4231/33. Each broker has its own convention and some will quote the full number and others will show only the last two.
You should have by now notice that there is a difference between the Bid and the Ask Price. This difference is callled the spread. For the major currencies the spread is normally between 2 to 4 pips difference. So, what is pips again. We will discussed about in a later post.
Let's come back to the quotes again. Using the value of the bid, you can buy 1 EUR for a price of 1.4231 US Dollars.
In the next post, we shall discuss more about the term PIPS and how it is calculated.
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