Forex is the decentralised market that cuts across the world. It is the most liquid financial market in the world. In currency exchange business, rate is ever fluctuating as a result of the ever changing market forces of demand and supply. Traders buy currency pair if they think the exchange rate will rise, and they sell it if they think that the exchange rate will fall.
The forex market never sleeps; it stays open around the world, twenty four hours every day and five days every week. This beats what is obtainable in the Stock market. Before now, when the Internet was not common, only big participants such as banks, very wealthy individuals, and hedge funds could participate in the forex market. But today, the story has changed as retail traders can buy, sell, and speculate on currencies anywhere in the world from the comfort of their own homes and with a click of the computer mouse through online brokerage accounts. There are many currency pairs that can be traded, and there are popular chats where traders talk in real-time where the forex market is going. Hence, the pairing of two currencies is known as Forex quote.
A forex quote always consists of two currencies, a currency pair consisting of a base currency and a quote currency. The currencies most often used as base currencies are USD, EUR, GBP, and AUD. The quote currency may be any other currency, including any of the common base currencies. For instance:
EUR/ USD 1.3600
In this quote, EUR is the base currency, while USD is the quote currency. It does not matter which currency is used as the base currency, the base currency always equals. From the above example, the quoted amount, 1.3600 is the amount of the quoted currency, USD; it takes to equate one unit of the base currency, EUR. The forex convention in that when these two currencies are compared, EUR is always the base, otherwise, the quote would be like this:
USD/EUR = 0.7352
This quote means that 1 USD equals 0.7352 EUR. If 1 is divided by 0.7352, the result is 1.36. Though, the two results look different, the relationship between the two currencies remains the same. There exist two parts of forex quote: an ask price and a bid price. Below is another forex quote that helps explain these terms in the forex market.
The bid price is 1.3600, and the ask price is 1.3605. Since the difference between a bid and an ask price in normal circumstances is a very small fraction which is less than 1/100th of the unit of the currency, the rule has it that only the last two digits which in this case are 05 of the four trailing digits are actually shown. If this is spelt out we will see something like this:
We then have the bid price as 1.3600, and the ask price as 1.3605.
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