Forex Trading – All about a Forex Quote. The word FOREX is derived from the words “FOReign EXchange. Unlike other financial market, Forex is open 24 hours, every day. Wherever there is a major financial center open, for example; banks, hedge funds, corporations, individual investors and speculators are trading currencies.
What Drives Forex Trading?
The cumulative buy and sell of a currency causes the value of your Forex investment to move either up or down. But, there are numerous factors that cause the fluctuation of exchange rate. A country’s political, social and fundamental economic environment, their central banks fiscal policy and interest rate adjustment are some contributing factors. This article will concentrate on the topic of Forex Quote because we’re trying to have a better understanding of how the currency exchange rate can affect the value of your Forex investment.
Currencies are traded in pairs and each currency has its own symbol. For the US Dollar – it is USD, Euro – it is EUR, Japanese Yen – it is JPY, for the Pounds Sterling – it is GBP, and for the Swiss Franc – it is CHF. Hence, EUR/USD would be Euro-Dollar pair. GBP/USD would be pounds Sterling-Dollar pair. And USD/CHF would be Dollar-Swiss Franc pair and so on and so forth.
You will always see the USD quoted first with few exceptions such as Pounds Sterling, Euro Dollar, Australia Dollar (AUD) and New Zealand Dollar (NZD). The first currency quoted is called the base currency. This is not surprising as the U.S. dollar is regarded as the central currency of the Forex market. It is involved in nearly 90% of all Forex transactions.
So how are these currency pairs quoted on the Forex market?
You will see two numbers on all Forex quotes. The first number is called the bid and the second is known as the offer (or the ASK) price. Take for instance EURUSD, you will see 1.4625/1.4630. The first quote of 1.4625 is the bid price, the price where traders are prepared to buy Euro against the USD Dollar. The second number 1.4630 is the offer or ask price and it is the price traders are prepared to sell the Euro against the US Dollar. You will notice that there is a difference between the bid and the offer price. This difference is known as the spread. Based on the previous EUR/USD quote, you know that 1 Euro is equal 1.4625 US dollar.
How do you profit in Forex Trading?
The way profit is measured of a currency is by “pips” or point. PIP is the acronym for Price Interest Point. If the EUR/USD moves from 1.4625 to 1.4655 that is 50 pips. A pip or 0.001 is the last decimal place of a currency quotation with the exception of the Japanese Yen and Yen cross rates. A price movement for the USD/JPY from 111.10 to 111.60 will be 50 pips.
Forex trading objective
The objective and goal for all Forex Traders are to profit from foreign currency movements. The rewards of trading Forex are immense. The amount of money you can earn can be life changing and ultimately leads you to achieve financial freedom. This requires continuous and adequate understanding and training in Forex education. This education may include understanding technical analysis, chart pattern and formation, trade management such as stop loss and profit target and money management. And if you invest and get the right Forex Trading knowledge, you can enjoy long term currency trading success.
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Disclaimer: All investments and trading in the stock market involve risk and is a personal decision. This article “All About A Forex Quote” is not a trading advice or instruction from Instaforex Nigeria but meant to create awareness about Forex trading.