While trading in forex currency market reading the forex quotes in a correct way is very important. But this can be very confusing for a newbie. How to read a forex quote could be a major question sometimes. In fact it is quite easy and understandable if done with a little attention. Here we would be discussing about some guidelines that you can follow for reading the forex quotes in a proper way. Initially you have to know how a forex quote looks like. One example for this is as follows:
EUR/USD = 1.3536
The above example shows you the foreign exchange rate between Euro and US dollar. It seems to be very easy, right? The trader must know that in all the forex quotes there are two currencies that are quoted. When you trade in forex the trader always buys one currency and sells the other at the same moment of time and that is the reason why the forex quote appears to be so.
In all the forex quotes that you see there are two currencies that are listed the first one is known to be the base currency while the second one is known to be the quote currency. The main purpose of the forex quotes is to show the trader the price relationship between the two currencies that a he wants to trade in. Here the foreign exchange rates gives us an idea of about how many units of the
Quote currency will the trader have to pay to get one unit of the base currency.
In the above mentioned example our quote currency is the dollar and our base currency is the euro. Thus, the forex quotes tell us how one currency is related to the other in currency trading. So for purchasing one unit of Euro the trader will have to pay 1.3536 units of the US Dollars. Up till now it was very easy as well as simple to understand, but now to make it a little more advanced lets add an additional thing known as the Bid ask spread to it.
All the traders existing or newbie must know about forex brokers. One thing you have to keep in mind is that the trades placed in the forex market are not the reason for the forex brokers getting paid. They are paid on the bid and the Bid/Ask spread. As mentioned we would now add bid/ask to our above mentioned example and it would look like:
EUR/USD = 1.3536/1.3538
This can also be further simplified into:
EUR/USD = 1.3536/8
Even though the amount of the spread may vary the brokers make money by taking commissions from their clients for buying the currencies and then selling them at a slightly higher rate. This is very much legal and all the forex brokers in the forex market do it.
A forex trader would buy at the first price quoted which is known as the Bid price and then will sell at the ask price which is the second price that is mentioned in the quotes. And this difference between the two currency prices is called as spread and the forex broker retains this as his profit from the trade. This spread is a clear and exact way where a trader can calculate the fees of the broker.
Thus, with a good and appropriate knowledge about how to read forex quotes, would help you to achieve desired success in forex trading.
