Understanding Forex Trading Quotes

Understanding Forex Trading Quotes

Being able to read and understand a Forex quote can be a little confusing at first, but for the most part just try an remember two things:
1. The currency listed first is the BASE currency.
2. The value of that BASE currency is always going to be 1.

The US Dollar is the centerpiece of Forex Trading and is typically considered the BASE value. So if your chart reads something like USD/CAD 101.09 this means that $1 US dollar is equal to 101.09 Canadian Dollars. Not too difficult to understand.

Pips

Now lets talk about pips. What is a pip? In Forex Trading, prices are quoted in pips. Pip stands for “percentage in point” and is the fourth decimal point, which is 1/1000th of 1%.

In EUR/USD, a 3 pip Forex spread is quoted and read as 1.2500/1.2503. However there is one exception to the rule, and that’s the Japanese Yen or JPY. In Forex Trading, the JPY quotation only has two decimal points instead of the four as with other major currencies. (JPY 1/100 versus other currencies 1/1000) So a USD/JPY 3 pip spread would read like this 112.02/112.05. This may look a little confusing but as you begin Forex Trading it becomes much easier to understand.

What does all this mean?

Think of your Forex currency pairs as if they were on a teeter totter. When one goes up, the other goes down. So if you are trading the USD/JPY and the price of the US Dollar goes up, then the Japanese Yen goes down. When the price of the Japanese Yen goes up, then the US Dollar goes down.