One can easily get amazed even by the name of Forex trading. The greed of earning huge profits forces most of us to try out our luck in Forex market. There is nothing wrong if you are investing your money in Forex market. This market has got lots of potential that one can take the benefit to become millionaire in a very short period. But before you can start trading in the Forex market, you need to understand how this market works, what are the common terminologies used and so on.
Before you start anything, you need to know the basic of the Forex exchange rate. These are the Forex quotes i.e. the exchange rate between the pair of two currencies in question. The Forex quotes are the base of the Forex market on which the whole trading is based. In the Foreign exchange market the value of one currency with respect to the other fluctuates time to time and this form the basis of the whole trade that is occurring in the Forex market.
To understand how to read the quotes, let us take an example. “Euro/USD = 1.3000”. This Forex quote signifies the rate of exchange of European currency Euro to American currency US Dollar. Forex quotes in the market are only given for two currencies in consideration. The quotes decide the whole trades in the Forex market i.e. a trader trades to exchange one currency for another at the quote or Forex rate. He buys a currency and sells another simultaneously.
In a Forex quote, a clear relationship and dependence of the two currencies is shown. The currency shown first is the base currency and the second currency denotes the quote currency. A quote refers a trader that how much units of the quote currency he needs to exchange it for a unit of base currency. In a quote the base currency always has a bigger value in the Forex market.
This was the basic of the quotes and Forex trade. But practically, you may need to pay slightly a higher price than what the Forex quote speaks. This difference is actually the commission of the Forex broker who is facilitating you the Forex trade. They do not charge on the trades placed but actually make money but charging the commission on the exchange that you did. This process is called as bid / asks spread.
For an example: EURO / USD = 1.3000 / 1.3002. This means that the market exchange rate for buying a unit of EURO is 1.3000 against USD i.e. you have to pay 1.3000 USD in exchange of 1 EURO but in practice you buy it from a broker by paying 1.3002 USD. This difference in rate is his commission that a trader has to pay with every trade.
This much knowledge of quotes will helps beginner understanding the basics of trade. Happy Forex trading!!
