Forex quotes and how to read them
This is how you will see currency pairs being quoted:
Let’s dissect it.
The symbols, GBP and JPY denote British Pound and Japanese Yen respectively. This means this rate (140.25) is for a transaction between one unit of Pound relative the Yen.
The first in the pair, Pound, is the base currency. And the second, Yen, is the quote or counter currency.
In any pair the base currency is the one being bought or sold. According to the rate mentioned for 140.25 Yen, you can buy 1 Pound. That is the exchange rate.
Similarly, if you’re selling that means you’re selling the Pound at a rate of 140.25 Yen per Pound. The same value goes both ways.
So when you see a quote like the one above, you need to think about whether you think the base currency’s rate will go up in the near future, or down.
Depending on that possibility you will buy or sell against the counter currency. You will buy if you think the value is likely to increase. This would mean that when you then sell it (after the value has gone up) you will get more Yen for the same amount of Pounds. That difference is your profit.
Ask and Bid Spread
The bidding price is the one a broker is willing to buy at (so if you sell to them, they will pay that rate). And the ask price is the one at which they will sell to you.
You will notice that more often than not, the ask price will be higher than the bid. This means that they’d rather buy than sell which is why they make it cheaper for you to sell.
This bid and ask price will come in a format like this:
This number in the middle is the difference between the ask and bid and it is called the Spread.
Good job! You’re getting on in this course at a fine pace! To see what you can do to make profit, keep reading.