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Forex QuoteIn the first article, you had learned about the basics of forex trading. You also learned about some key forex terminology like “pips”,” margin trading”,” lots” and so on. Now you need to know what a forex quote is. Because without knowing what a forex quote is, you simply cannot trade the forex market.

Explaining The Forex Quote:

Forex quotes are always in pairs. For example, when you open a trading screen, you will always see different currency trading pairs listed as USD/JPY, USD/CHF, EUR/USD GBP/USD, and so on. As an example, consider the currency pair EUR/USD. The currency to the left of the / (EUR in this case) is referred to as base currency and the currency to the right of the / (USD in this case) is referred to as the counter currency. In a trading screen just after the currency pair you will see two numbers. And what are these numbers? As an example imagine for a moment that for the currency pair EUR/USD you see the numbers 1.2525/1.2530. The first number, the one to the left of the slash is called the “bid” price, and the second number to the right of the slash is called the offer or the “ask” price. What then is the “bid” price? It is simply the price at which traders are prepared to buy Euro against the US dollar. The second number i.e. 1.2530 is the “offer” or “ask” price. What then is the “offer” price or “ask” price? It is the price at which traders are willing to sell the Euro against the US dollar.
This is something you ought to understand whenever you do forex trading. Understanding the nuances of these numbers will contribute a great deal to your success in forex trading.
The important thing is that you should never think at the back of your mind that forex quotes are confusing.

Exchange Rates

You will always see the trading screen flickering with ever changing numbers, and you ought to understand that these numbers are exchange rates and they keep changing every single second. Exchange rates are the lifeblood of the forex market and everything revolves around them. Eventually when you start your forex trading using real time accounts, the value of your investments increases or decreases depending on the changes in the currency exchange rate. What causes these changes in the currency exchange rates? It could be anything from a country’s political situation to its social and fundamental economic environment. Even fiscal policy changes and interest rate adjustments by central banks contribute to changes in currency exchange rates.

Where these numbers come from?

So now you have learned how a currency pair appears on the trading screen and the significance of the numbers that follow it. Summarizing from what we have learned so far, you would do well to remember that the numbers that follow a currency pair basically depict the exchange rates for a currency pair. But you don’t know as yet, where these numbers come from, and why is there a difference between the two numbers. Firstly the exchange rates come from trading desks around the world and you could find it in a consolidated form in almost any forex trading site. But of course its up to you to find the site that meets your needs. We will learn more on that later Secondly let us analyze the significance of the gap between the bid rate and the offered rate.

The gap between Bid and Offer rates

In the forex market, the “spread” is defined as the price gap between the bid rate and the offered rate or the ask rate. For example in the example of EURUSD=1.2525/1.2530 the spread is 5 pips as 1.2525 is the bid rate and 1.2530 is the offer rate. The brokers’ use spread for their own purpose. It is how brokers make their money in forex trading but of course they don’t get the entire spread as their profits.

Now you have learnt the basics of the forex quote. But to be sure of the basics you need to open a demo forex-trading screen and learn to evaluate the basic principles you have learnt so far. Remember forex training never ends. The more you practice with forex demos the more you will understand the forex quote.

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