How to Read a Currency Quote

An investor has to understand how to interpret currency quotes and other basic terminology of the forex market before trading currencies with real money. Every foreign exchange transaction involves the simultaneous buying one currency and selling of another. These two currencies make up what is called a "currency pair". An example of an actual forex quote of the dollar-yen exchange rate will make this easier to learn [our free training includes information on interpreting exchange rates for traders who are new to the forex market].

Example: USD/JPY = 115.53
The currency to the left of the slash ("/") is called the base currency (USD = the U.S. Dollar) and the one on the right is called the quote currency or counter currency (JPY = the Japanese Yen). The way the exchange rate is given means that 1 unit of the base currency (that is, 1 dollar) is equal to 115.53 yen. When buying a currency, the exchange rate specifies how much the buyer has to pay in units of the quote currency to buy one unit of the base currency; in the example above, a day trader would have to pay 115.53 yen to buy 1 U.S. Dollar. When selling, the exchange rate specifies how much units of the quote currency a trader gets for selling one unit of the base currency; in the example above, 115.53 Japanese Yen will be received when 1 U.S. Dollar is sold.

Just like a stock quote, a currency quote is made up of a bid price (or bid) and an ask price (or ask). Look at the example below of a forex quote obtained from the online trading platform:

The example above shows a bid price of 107.01 yen and an ask price of 107.06 yen [notice that only the last two decimal places of the ask price are displayed in the quote (06 instead of 107.06) - this is because it is understood that since the bid price starts with the numbers 107, these must also be the first three number for the ask price]. The bid is the price at which dealers are willing to buy dollars (base currency) in terms of yen (quote currency) and users of our trading platform can sell dollars in terms of yen. This means that if a currency trader pressed the button labeled "Sell USD," he would sell dollars at 107.01 yen. The ask price, on the other hand, is the price at which currency dealers are willing to sell the base currency (dollars) and traders on our online trading software could buy it. Likewise, by clicking the button labeled "Buy USD," a trader would be buying dollars at 107.06 yen.

Despite the fact that there are a great number of currencies all over the world, about 85% of all daily transactions involve trading a group of leading currencies known as the "Majors." These include the U.S. Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. In order of most active to least active, the four most actively traded currency pairs are the U.S. Dollar / Japanese Yen (USD/JPY), Euro / U.S. Dollar (EUR/USD), British Pound / U.S. Dollar (GBP/USD), and the U.S. Dollar / Swiss Franc (USD/CHF). The U.S. Dollar / Canadian Dollar (USD/CAD) and the Australian Dollar / U.S. Dollar (AUD/USD) are also actively traded pairs. For currency traders, the best opportunities are with the most commonly traded (i.e., most liquid) currencies; i.e., the "Majors."

Three three quotes below were taken from the live FX trading system. Going from left the following rates are displayed: the Euro-Dollar exchange rate, the British Pound-Dollar exchange rate, and the Dollar-Swiss Franc exchange rate - all quotes of major pairs.

Example 1 - Euro-U.S. Dollar Quote: Buying one euro would cost 1.2605 US dollars and selling would provide 1.2601 US dollars.

Example 2 - British Pound-U.S. Dollar Quote: Buying one British Pound would cost 1.7884 US dollars and selling would provide 1.7879 US dollars.

Example 3 - U.S. Dollar-Swiss Franc Quote: Buying one Dollar would cost 1.2375 Swiss Francs and selling would provide 1.1.2370 Swiss Francs.

To see currency quotes live, sign up for a free live simulator of our trading software by clicking on the link below. The demo will not only allow you to see prices of different currencies live, but will also let you simulate real time trading in different currency pairs. Click here for educational information on currency trading.

To sign up for a live 30-day free demo of our trading software, click on this link...