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15.How to understand the forex quote?

15.How to understand the forex quote?
15.How to understand the forex quote?

In the forex market, exchange rates are given in currency pairs. The most important concept to understand for Forex quotes is “the relative value of the two currencies.” For example, in the currency pair EUR/USD, EUR is called the base currency, and USD is called the quote currency. 

 

Base currency 

The base currency in the quote represents a unit of base currency which can be converted into x amount of the paired quote currency. For example, the current EUR/USD quote is 1.2, that means 1.2 dollars can be converted per euro. 

 

Quote currency 

The quote currency is also known as settlement currency or counter currency. In the price quote, it represents the current amount of quote currency to be spent to exchange for 1 base currency. For example, the current quote of USD/JPY is 104.8, which means 104.8 yen can be converted into 1 dollar. 

International forex quote is mainly based on the US dollar.

In the currency pairs involving the US dollar in the forex market, the quotation methods can be divided into two terms; 

 

 1. American terms 

American terms represent a unit of foreign currency can be converted into corresponding US dollars, where the US dollar is the price quote currency. At present, only the British Pound, Euro, Australian dollar and New Zealand dollar are quoted in this way in the international markets, namely, GBP/USD, EUR/USD, AUD/USD and NZD/USD. If GBP/USD=1.33, this means 1 Pound = 1.33 US Dollar. 

 

2. European terms 

European terms represent the value of the US dollar when exchanged for foreign currencies.

This is where the US dollar is the base currency, for example:

  • USD/CAD
  • USD/JPY
  • USD/CNY

If USD/CAD=1.41, then 1 US Dollar = 1.41 Canadian Dollar. 

Uncommon Forex quote terms can include:

  • USD/EUR
  • JPY/USD

*Other quotes can also be seen in the market.

This is also convenient for people in different countries to check and calculate the exchange rate of their own currency. When studying exchange rates, it is necessary to know if American terms (direct) or European terms (indirect) quotations are used.

In the case of USD/CNY, when the rate falls, it means that the US dollar depreciates against the CNY. Or, the CNY is higher against the US dollar. 

 

Bid-ask spread 

The exchange rate quotation has two quote prices, bid and ask price, and the concept may be very confusing. For example, if USD/JPY is 103.75/103.78, the right side is the concept of “buying” price, which means you can buy the base currency USD at 103.78 yen. On the left is the concept of “selling” price, which means you can sell base currency USD at 103.75 yen. 

 However, the price quote you see in the bank is different, that is, the bid price is at 103.75 and the asking price at 103.78. This actually means that the bank sells dollars to the market (to you) at 103.78 yen and buys dollars in the market (from you) at 103.75 yen. 

Related Article: What is spread and pip?

 

Next Article:  16. What are currency codes and symbols in Forex?

 

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How to understand the forex quote? | Z Academy

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