A lot of new traders do not really understand what forex quotes are all about. There is a standard of quoting currency which every forex trader must be conversant with, and that is just the basics of what the trader needs to know about forex trading. To help those who are struggling with understanding what forex quotes are all about, this article will focus on currency quotes and how they apply to the forex market.
INTERPRETING A FOREX QUOTE:
A forex quote is an expression of the relationship between two different currency pairs based on their exchange rates. So, when a currency is quoted, it is done in comparison to anther currency. The aim of quoting a currency is basically to reflect the value of a currency through another. In forex quotes, the two currencies being compared usually combine to form a currency pair. Here is an example below
AUD/CAD = 1.01
The expression above is a typical forex quote. It is made of a currency pair (AUD and CAD written as AUD/CAD) and the pair is equated to a numerical value. The first currency in a currency pair (in this case AUD) is known as the base currency, while the second currency in a currency pair (in this case CAD) is known as the quote or counter currency.
In every forex quote, the base currency is always equated to 1, while the quote currency is the value the pair is equated to. The expression above means that 1 AUD is equal to 1.01 CAD. In other words, you can buy 1 AUD with 1.01 CAD. Here, one can say that the CAD is the quote currency. Note that the forex quotes do not have the name of the currencies in full; they only have the globally accepted abbreviation of the currency.
QUOTING A CURRENCY PAIR
Now that you know what makes up a currency pair and how to read them, let us discuss how to quote a currency. There are two ways of quoting a currency pair, they are
Direct currency pair
Indirect currency pair
In a direct currency quote, the quoted currency is the currency is the domestic currency, and in an indirect currency quote, the base currency is the domestic currency. So direct quotes deal with domestic currency and indirect quotes deal with base currencies.
These are just the peripheral of what currency quotes are all about. A deeper explanation of it will include more details and other sub topics like cross currencies, bid, ask, pips, spreads, and the comparison of forex currency quoted to other financial markets.
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