In the forex market, currencies are quoted in pairs, and every pair is actually a product that can be purchased and sold. Forex quotes are the price of a particular pair at any given point in time, and a are an integral aspect of speculation and trading. Understanding quotes can be challenging initially, especially if you have not acquired the right training and knowledge. Utilizing demo accounts, studying charts and learning new terms should be part of the regimen of any aspiring trader's education. The following information should help you further understand quotes and how to use them to conduct efficient speculation.
Understanding Currency Pairs
Currency pairs are listed with the the 3-digit ISO code of the base currency first, followed by a slash and then the ISO code of the term currency (also called the quote currency). For example, in the case of USD/CHF, this pair is indicating that a unit of U.S. dollars will be traded into Swiss francs, and then back into U.S. Dollars after a specified time period. Some of the most popular currency pairs include: EUR/USD, GBP/USD, USD/JPY, USD/CHF, EUR/JPY, USD/CHF, EUR/GBP, and USD/CAD. Most profitable trades conducted in the currency market include these pairs in some form or another, although there are other pairs that can be lucrative at certain times.
How to Read Forex Quotes
In some cases, the quote will be listed with only one number shown, however most of the time the bid and ask price will be shown. The bid price is the price at which the base currency is sold, and the ask price is the price at which the base currency is bought. The difference between the bid and the ask price is known as the spread. The bidding price is always lower than the ask price, as this difference is what allows brokers to earn commissions without charging their clients. Pips are an important part of understanding quotes. A pip is the smallest increment in which a currency rate can move. In most currencies, a PIP is equal to 1/100th of a cent, however in the Japanese yen it is equal to one cent. Most people adapt to reading quotes as they gain experience in the market, even though there is an understandable amount of confusion at first.
Charts and Quotes Comparison
All traders utilize charts at one point or another, regardless of their analytical approach. Forex charts simplify and centralize the process of comparing multiple quotes in order to facilitate more efficient speculation. Learning how to read charts is an intimidating yet necessary process that can mean the difference between a successful trader and a discouraged quitter. There are three main types of charts currently used by professional traders – Point and Figure Charts, Bar Charts, and Candlestick Charts. Bar charts are the simplest and most popular type. Each bar on the chart indicates a specific time period that can range from one minute to several years, the purpose of a bar chart is to put quotes into perspective over time for historical analysis. Point and figure charts do not utilize any sort of time indicators, and instead are used to indicate recent price direction changes in the market. Candlestick charts display the high, low and opening of currencies during a specific time period and are amongst the most visual charts.
Using the above information you should be able to begin your journey into understanding and utilizing forex quotes and charts to your advantage. Although you'most likely still have a lot to learn, the learning process can be fun with the right mindset – realizing that everything you're leaning could be contributing to your wealth in the near future.