Learn How To Read Forex Quotes And Prices

Learn How To Read Forex Quotes And Prices

Before you can start trading, you must learn how to read Forex quotes and prices on the trading platform.

This is a basic and elementary topic in Forex trading but it is the foundation from which some other topics are built on.

In this tutorial, you will learn more about;

  • The components that make up Forex quotes.
  • What a base currency is.
  • What a counter or quote currency is.
  • What a Bid price is.
  • What an Ask price is.
  • What a PIP and a point is.
  • What a spread is.
  • What going long or short means.
  • What being bullish or bearish means in Forex trading.

In a previous article, I provided a comprehensive overview of what forex trading is and how it works.

In that article, I briefly touched upon how to read Forex quotes and prices and showed an overly simplistic example as to how you can potentially make a profit (or loss) from trading currencies.

I also mentioned that currencies are always traded in pairs, because you have to sell one currency to buy another currency. Then when you buy back the original currency, and in affect reverse the transaction you will either realize a profit or a loss. The result depends on when you buy or sell and whether the price is more favorable or not.

This tutorial will show you how to read Forex quotes and prices in detail.

Lets get started.

How to read Forex quotes and prices

The components that make up Forex quotes are the two currencies, which constitute the symbol and then the two quotes or prices that will follow. The two quotes are the prices that you will be able to buy the currency pair (symbol) at or to sell the currency pair at.

When you open your trading platform, you will see a list of symbols or currency pairs, like this;

MT4 list of forex quotes and prices

This is just a sample and you will be able to trade many more currency pairs than this with your typical forex broker.

From top to bottom they are;

  • Euro vs US Dollar (EURUSD)
  • Great British Pound vs US Dollar (GBPUSD)
  • US Dollar vs Japanese Yen (USDJPY)
  • Australian Dollar vs US Dollar (AUDUSD)

Let’s focus our attention on the EURUSD for now.

The first currency in the quote (EUR) is the base currency. The second currency in the quote is the counter or quote currency. The base currency always represents one unit of that currency.

The quoted Ask price lets you know the amount of the counter currency it buys. Conversely, the quoted Bid price lets you know the amount of the quote currency that is required to buy one unit of the base currency.

The Ask price is higher than the Bid price

How to read forex quotes and prices

So for this example;

  • One Euro buys 1.16221 USD
  • 1.16216 USD buys one Euro

The difference between the Bid and Ask prices is referred to as the spread

In the images above, the spread for the EURUSD is 1.16221 minus 1.16216, which is equal to 0.5 PIPs.

A spread exists in all financial markets and can be considered as a transaction cost whenever you buy or sell an asset or currency pair. This is because your deal will start in the minus and you have to cross it each time you execute a deal.

If you were to buy at one price and immediately sell on the other, you would crystalize the spread and incur a loss. The price has to move in your favour by at least the distance of the spread before your deal will be at a break even position.

PIP stands for Percentage in Points

A pip represents an increment or decrement in currency prices. Just like we might measure distances in meters, we measure how far currency prices moved in terms of pips.

The pip is the 4th decimal place in the forex quote unless the symbol includes the Japanese Yen (JPY). The pip position for currency pairs that include the JPY will be at the 2nd decimal place.

Currencies are usually quoted to 5 decimal places. The 5th decimal place is referred to as a point and there are 10 points in one pip. For currency pairs that include the JPY, the point will in the 3rd decimal place.

So if the price goes from 1.16221 up to 1.16721, it has moved 50 pips. If the price goes down from 1.16221 to 1.16000, it has moved 22.1 pips. If the price is 1.16221 and moves down by 100 pips the price will be 1.15221. Does that make sense? Ok.

This is what you need to take away from all of this for the moment;

  • You buy on the Ask price and sell on the Bid price.
  • The difference between the Bid and Ask price is the spread.
  • Forex prices move up and down and this is measured in pips.
Pip positin in forex quote

Now, I will tie this all together for you with an illustration so it makes more sense.

The EURUSD is trading at 1.16216 / 217 (the spread is 0.1 pips) and you have reason to believe that the price is going to go up. So you buy on the Ask price at 1.16217. Four hours later, the EURUSD moved 69.5 pips to 1.16911 / 914. So you decide to sell on the bid price to realize your profit. You would have made 69.5 pips on this deal.

This is what it would be like in the other direction.

The EURUSD is trading at 1.16216 / 219 (the spread is 0.3 pips) and you have reason to believe that the price is going to go down. So you sell on the Bid price of 1.16216. Four hours later, the EURUSD moved 69.5 pips to 1.15519 / 521 so you decide to buy on the Ask price to realize your profit. You would have made 69.5 pips on this deal.

How much that would equate to in monetary terms would depend on the value of each pip. Just to give you a rough idea, each pip could be worth 10 cents by trading one micro lot or $10 each by trading one standard lot. That is a deal size of $1,000 or $100,000 exchanged or traded respectively.

The higher the lot or deal size is, the higher the pip value is. This will be covered in more detail in a later tutorial.

Let’s recap quickly;

  • If you think the price is going to go up, you buy the currency pair on the ASK price.
  • If you think the price is going to go down, you sell the currency pair on the BID price.
  • When the time comes to close the deal, you will be exiting the market on the other price.

What is actually happening here is when you are buying the currency pair; you are buying the base currency and simultaneously selling the quote or counter currency.

When you are selling the currency pair, you are buying the quote or counter currency and simultaneously selling the base currency.

Forex trading involves simultaneously buying and selling foreign currencies and reversing the transaction to either realize profits or to stop a deal from incurring further losses.

When the price is going up, the base currency is appreciating in value relative to the quote or counter currency. The quote or counter currency could also be depreciating in value too.

The inverse is also true.

When the price is going down, the quote or counter currency is appreciating in value relative to the base currency. The base currency could also be depreciating in value too.

Bulls and Bears

  • Buying is also known as going long or being bullish on the asset or symbol.
  • Selling is also known as going short or being bearish on the asset or symbol.
  • Bulls are buyers that go long and Bears are sellers that go short.

Bulls and bears are synonymous with financial markets as they are metaphorically used to describe price trends. It is unclear where these expressions originate from but it is commonly believed that they derive from the way each animal attacks.

Bulls strike up with their horns and bears swipe down with their paws.

  • When the price trend is up, there are usually more buyers and it is a bull market.
  • When the price trend is down, there are usually more sellers and it is a bear market.

Let’s summarize everything to take away before proceeding further

  • You buy on the Ask price and sell on the Bid price.
  • The difference between the Bid and Ask price is the spread.
  • Forex prices move up and down and this is measured in pips.
  • The pip is the 4th decimal place; the 5th decimal place is a point.
  • When the symbol includes the JPY, the pip is the 2nd decimal place; the 3rd decimal place is the point.
  • If you think the price is going to go up, you buy the symbol or currency pair.
  • If the price does go up, the base currency is appreciating in value.
  • If you think the price is going to go down, you sell the symbol or currency pair.
  • If the price does go down, the quote or counter currency is appreciating in value.
  • Buying is also known as going long, you are bullish.
  • Selling is also known as going short, you are bearish.
what going long or short forex quote means

That just about concludes this tutorial.

There is enough industry and trading terminology here to get your head around.

Other than that, the trading platform makes it very easy to buy and sell. We will cover this in a later tutorial.

You should know how to read forex quotes and prices now.

Next: The Pip Value And Forex Lot Sizes

Back: What Is Forex Trading And How It Works

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