When using a Forex Time platform for currency trading or copy trading, you don’t just have to follow your intuition. It is also essential to know the markets well and, of course, to comprehend how to read different currency pairs to correctly interpret the quotes in the Forex market.
What Are the Quotes?
In Forex, the price is the exchange value of one currency in relation to another. Brokers usually handle two prices for currency pairs: the price for sale and the price for purchasing. The difference (spread) between these two prices would be the contribution value.
How Is a Currency Pair Composed?
Currency pairs are created analogically: a purchased currency and sold currency: USD/EUR, USD/GBP, etc. Keep in mind that world currencies are encoded according to ISO 4217. This means that the names of the currencies do not appear in full, only their identification codes.
These identification codes are composed of three capital letters, each of which has a meaning:
- The first two letters usually correspond to the country from which the currency comes, for instance, the United States in USD.
- The third is usually the initial letter of the currency, in this case, it is the dollar.
In all currency pairs, one of the currencies is the base and the other is the quoted one.
What Is the Base and Quoted Currency?
The currency placed first is the base currency. This is separated by a bar (/) from the quoted currency. If we take the USD/GBP pair, for example, the base currency would be the US dollar (USD) and the quoted one, the English pound (GBP).
Purchase Price and Sales Price
Currency pairs in the Forex market show two different prices and how to read currency pairs in forex trading course the UK:
- Sale price – it is the price level at which investors can sell the currency pair.
- Purchase price – the price at which they can acquire the pair.
The objective of brokers will always be to acquire currency pairs when at relatively low prices and try to sell them when they increase.
What Is the Spread?
Normally, the purchase prices of the currencies are higher than the sales prices. This differential between both values is called the spread.
The spread would be the benefit that the investor operating with the currency pair will obtain. This profit margin is usually lower for the most popular currencies for their high levels of liquidity and transactions. The currency pair with which most operations are carried out globally is EUR/USD. Therefore, it is not surprising that its profit margin (spread) is lower than that of other pairs.
Additional Tips to Understand Currency Quotes
- The purchase/sale prices are given from the position of the broker. Investors acquire the currency at their purchase price and offer it at the sale price.
- The pip is the smallest possible movement that applies to all pairs except for the Japanese yen.
- The spread is the margin that the trader would obtain when trading Forex with currency pairs.