Forex Trading Basics | Understanding a Forex Price or Quote.

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FOREX TRADING BASICS

UNDERSTANDING A FOREX PRICE (QUOTE)

A forex price or quote is the price or rate of exchange of one currency in terms of another. The first currency of a currency pair is called the base currency and the second is called the quote currency. The forex price shows the value in terms of the quote currency of one unit of the base currency. For example, in the currency pair EUR/USD, the Euro is the base currency and a quote of 1.3500 means that €1 Euro (EUR) = $1.3500 US Dollar (USD).

The United States Dollar (USD) and the European Union Euro (EUR) are the dominant base currencies in terms of daily traded volume in the foreign exchange market. The British Pound (GBP), also called sterling, is the third ranking base currency. For any currency pair, as the base currency becomes more expensive, the forex quote will increase in value and as the base currency becomes cheaper, the forex quote will decline in value.

The USD based pairs are USD/JPY, USD/CHF and USD/CAD. These prices show the value of one U.S. dollar in terms of Japanese yen, Swiss francs and Canadian dollars, respectively.

The Euro based pairs are EUR/USD, EUR/JPY, EUR/GBP, EUR/AUD, EUR/CAD, EUR/CHF and EUR/NZD. These prices show the value of one Euro in terms of U.S. dollars, Japanese yen, British Pounds, Australian dollars, Canadian dollars, Swiss francs and New Zealand dollars, respectively.

The British Pound is the base for GBP/USD, GBP/JPY, GBP/AUD, GBP/CAD, GBP/CHF and GBP/NZD. These prices show the value of one British Pound in terms of U.S. dollars, Japanese yen, Australian dollars, Canadian dollars, Swiss francs and New Zealand dollars, respectively.

The Australian Dollar (AUD) is the base for AUD/USD, AUD/JPY, AUD/CAD, AUD/CHF and AUD/NZD. These prices show the value of one Australian dollar in terms of U.S. dollars, Japanese yen, Canadian dollars, Swiss francs and New Zealand dollars, respectively.

CURRENCY CROSS RATES

A cross rate is an exchange rate between two currencies where neither of the two currencies is the currency of the country where the currency pair is being quoted. For example, in the U.S., a GBP/CHF quote would be considered a cross rate whereas in the UK or Switzerland it would be one of the primary currency pairs traded. For traders based in the United States, a cross rate is simply a currency exchange rate that does not involve the U.S. dollar.

Just a Regular Price. When the U.S. dollar is the quoting currency, the price of a unit of foreign currency say, the Euro, looks just like the price of any other item to the U.S. resident, items like apples and potato chips. If the Euro becomes more expensive, then it is said to appreciate against the dollar and if it becomes cheaper, then it is said to depreciate against the dollar. The U.S. dollar is also the quoting currency for the British pound, Australian dollar and New Zealand dollar.

Forex Opportunities. The retail forex trader can have access to a wide range of currency pairs, any of which may provide a trading opportunity. The bid/ask spread typically ranges from just a few pips in the most liquid or actively traded currencies to as high as 25 pips or more for those currency pairs that are much less liquid.

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Keywords: forex trading basics, forex education, forex price, base currency, quote currency, cross rate
Abstract: This part of our forex education tutorial covers understanding a forex price or quote.