Currencies
Currencies are traded in pairs in the Forex market, eg. EUR/USD (Euro/Dollar), USD/JPY (Dollar/Yen), GBP/USD (Pound/Dollar), etc.
We distinguish:
Major pairs (majors): EUR/USD, USD/JPY, GBP/USD, USD/CHF
Cross pairs: all other, for example EUR/JPY, AUD/USD, etc.
The left-listed currency is known as the base currency, the right side is the sub currency. Here is a short video: "Pair characteristics (the majors and the crosses)"
How to read a Forex quote?
Reading a Forex quote is the initial step to take before embarking on currency trading. The Forex quote is the basis for all transactions conducted in the Forex market. In the volatile Forex market one currency´s strength is pitted against another currency´s strength. In effect, what takes place is the evaluation of one currency in terms of the other. The simultaneous buying and selling of two currencies are depicted in a currency quote.
We have for example the EUR/USD pair. The course is for example 1.2700:
This market value tells you exactly how many units you need to sell the sub currency to buy one unit of the base currency. In this example, you must pay $ 1.2700, to obtain 1 euro.
On the other side of the course tells you how many units you have to buy of the sub currency, if you want to sell one unit of the base currency. In this case the sale of 1 euro would obtain $ 1.2700.
It is important to cultivate a true understanding of the currency quote for a Forex trader. He should be adept at gleaning the information behind the currency quote no sooner than he reads it and this will enable him to trade securely and profitably with that knowledge.
Bid/ask price and spread
At the Forex market there are provided 2 Prices for each currency pair: The bid and the ask price.
The ask price is the price at which you can purchase the relevant currency pair, so buy the base currency and sell the sub currency.
The bid price is the price at which you can sell the currency pair, so sell the base currency and buy the sub currency.
The difference between bid and ask price is called the spread. You could say that the spread represents the fixed cost of a Forex transaction. The spread is at the Major Pairs usually smaller than in the cross pairs and can fluctuate depending on the market situation. Some brokers offer a fixed spread, which does not change even under highly volatile market conditions, others fit in the spread of the situation (eg. just before and during important news).
For more information you can visit Babypips.com - there you can learn the basic concepts of Forex trading.
The contents of the websites is only for information purposes and not an investment advice. Forex transactions are always risky transactions and not suitable for everyone. You should not invest funds, whose loss you can afford. Before deciding to trade, you should know all the risks associated with Forex trading.
