Basic Information on Reading an FX Quote
When entering the forex market as a trader, you will be required to develop a certain set of skills. One of these skills is reading an FX quote. The ability to read an FX quote is a basic one; however, beginner traders may find it difficult to master without constant practice. Yet, it is an essential one, as without understanding how to read a forex quote, one cannot trade on the forex market effectively.
What is an FX quote?
The forex quote refers to the configuration in which the currency prices are presented. Each forex trade is completed using a currency pairing such as USD/EUR – this means you are trading with a US dollar and euro pair. The base currency in this pairing is the first currency stated – the USD – and the counter is the latter – the EUR. A forex quote is shown as the value of the counter (EUR) compared to a unit of the base currency (USD).
However, if the forex quote is not stated as one single price, but as two prices, this represents both a selling and purchasing price. A single price quotation denotes merely the current market price of the currency pairing.
The two prices, buying and selling, are referred to as a ask and bid respectively. On certain platforms they will be noted as offer and bid. A trader will also come across the term ‘spread’ when reading forex quotes. The spread is the difference between these two prices and is the profit a broker earns from any transaction involving this pair. 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 ‘popular’ the currency pairing is – or how frequently it is traded.
How can a Trader make use of the Different FX Quotes?
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 the introduced broker/client relationships. Furthermore, a trader can earn a more stable income by offering trading signal services and guiding these introduced clients. The trader will require these FX signals to establish the profit he can incur from his client’s trading acts.
What are the Advantages of FX Quotes?
In addition to establishing the value of a currency pairing, forex or FX quotes can be used to tell if a market is reaching a psychological support or resistance point. When a forex 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. Once gathered, the FX quotes will display instantly and inform the trader of the market’s direction and movements.