In order to be an effective trader you will be required to develop a certain set of forex trading skills. Among these different skills is the ability to read and understand the FX quote. Although reading an FX quote is simple for an experienced trader, it can be rather difficult for a new trader who has not encountered a quote before. However, FX trading requires one to have this skill in order to trade on the foreign exchange market.
Defining the FX quote
The forex quote refers to the composition in which the currency prices are presented. Each forex trade is completed using a currency pair such as USD/GBP – this means you are trading with a US dollar and GB pound pair. The base currency in this pairing is the first currency stated, the USD, and the counter currency is the latter, the GBP. A forex quote is presented as the value of the counter currency (GBP) compared to a unit of the base currency (USD). If the forex quote is not stated as one single price, but as two prices, this represents both a buying and selling price. A single price quotation indicates the current market price of the currency pairing.
The two prices, selling and buying, are referred to as the ask and bid respectively. On certain platforms they will be noted as offer and bid. A forex trader will also come across the term ‘spread’ when reading FX quotes. The spread is the difference between these two prices and is the profit a broker earns from any transactions. The volume of the spread differs from one currency to the next and is determined by the degree of liquidity within the trade. Another influential aspect is how frequently the currency pair is traded.
The benefits of the FX quote
When establishing the value of a currency pair FX quotes can be used to tell if a market is reaching a support or resistance point. When an FX trading platform is used by a trader there is a short period of time before the charts open. This delay is caused by the software gathering relevant information from the market.
Using the FX quote
The liquidity of different currency pairings can be identified in its forex quote. The smaller the spread of a pairing, the greater the fluidity. Traders must note that the higher the liquidity the more likely the trade will be profitable.
Contrary to popular belief, traders on the forex market do not earn money via trading alone. There are opportunities to gain profits outside of the trading arena by introducing brokers to forex firms. By doing this the trader will earn a commission in the form of a certain percentage of the spreads traded by introduced broker/client relationships. Furthermore, a trader can earn a more stable income by offering trading signal services and guide these introduced clients. The forex trader will require these FX signals to establish the profit he can incur from his client’s trading acts.