Currency exchange quote is usually confusing to new forex traders as a result of the standard for quoting currency. Investors of all level need to be familiar with this if they must do well in the forex market; talking about currency quotations and how they are applied in currency pair trades.
HOW TO READ A FOREX QUOTE:
The first thing with regards to understanding currency exchange quote is to learn to read a quote. A currency quote is an expression of a currency in relation to another currency. This is to know the value of a currency in a different currency. The need for a currency quote is usually as a result of exchange rate between the currencies of interest (usually combines in a certain way to form a currency pair). Therefore, the exchange rate between AUD (Australian dollar) and CAD (Canadian dollar) forex quote will forex quote will be
AUD/CAD = 1.01
This is a typical example of a currency pair; it is made of two currencies, one of which is the base currency, and the other, the quote currency. In the example of currency pair above, AUD is the base currency, while CAD is the quote currency. Therefore, the expression AUD/CAD = 1.01 means that the value of a unit of Australian dollar in Canadian dollar is 1.01 CAD; that is 1AUD = 1.01 CAD. The base currency is the AUD; and the quote currency is CAD.
QUOTING A CURRENCY PAIR – DIRECT AND INDIRECT CURRENCY QUOTES
There are two ways of quoting a currency pair in the course of foreign exchange – direct currency exchange quote and indirect currency exchange quote.
In a direct quote, the domestic currency is the quoted currency. This means that whatever numerical value that is being equated to a direct currency quote is the value of the base currency for one unit of the quote currency. In an indirect quote, it is the other way round. The domestic currency is the base currency, and the value a unit of it is the same as what has been quoted in a different currency (the base currency).
CROSS CURRENCY QUOTES
There is also the cross currency quotes; a currency exchange quote that does not contain the US dollar, just like the cross currency pairs do not contain any US dollar too. Asides from expressing the price movement of a pair, cross currencies generally expand trading opportunities in the forex market. However, they not trade as good as the other currency quotes that contain the USD.
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