You can’t be a successful trader without learning how to read Forex quotes. But it’s not as easy as you may think.
Forex quotes come in currency pairs. You always have the base currency and the quote currency. If you want to know how to effectively read those and invest smartly, read on 5 tips for reading Forex quotes.
1. Reading Pairs
When considering quotes, you will see pairs that look somewhat like this:
The first currency is the base currency, which always equals 1. The second currency, which is the quote currency, shows how much does 1 unit of EUR costs in USD. So, with the above quote, you buy 1.2220 USD for each EUR you spend.
2. Understanding Quotes
According to Investopedia, bid and ask quotes are a “two-way price quotation that indicates the best price at which a security can be sold and bought at a given point in time.” You will often see two quotes with your Forex pair. This indicates how much you will make from selling back. Don’t sell too quickly, or you will just lose money.
3. Direct vs. Indirect Currency Quotes
Now that you know how quotes work, it’s easy to understand there are two ways of quoting currency pairs: direct and indirect quotes.
Simply put, direct currency quotes have the quoted currency as the domestic currency. Indirect currency quotes have the base currency as the domestic currency. In short, direct quotes deal with domestic currencies and indirect quotes deal with base currencies.
4. Get Familiar with the Terminology
Pips, also known as spreads, refer to the smallest increment of value you can trade. For example, a Forex quote might go up by 0.005 USD. These 5 units are the quote’s pip. Pip is actually an acronym for “percentage in point”.
When you trade in positive pips, you are making a profit, and when you sell your pips when they’re negative, you’re losing money. It’s often good to wait for that perfect jump in pip value, but you need experience and perhaps the guidance of signal providers.