Forex Currency Quotes: How to Read Forex Currency Quotes
In the forex market the currencies traded are traded in pairs, example of currency pairs are:
To trade these currencies a trader needs to know the currency quote which is the price the trader will buy one currency in relation to another.
For example if a trader was to trade the EURUSD, the trader would get a currency quote of 1.3500. what this means is that 1 EUR is equal to 1.3500 USD, therefore if a trader has 1 EUR and buys the USD the trader will get 1.3500 USD, if the trader has 10 EURs and buys the USD he will get 13.5 USD, if a trader has 100 EUR and buys USD, he will get 135 USD.
If the currency quote gets to 1.3600 after the trader has bought EURUSD the trader will now have 136 USD instead of 135 USD a profit of $1 USD. But because forex there is leverage if a trader has EUR 1000, the trader can get leverage of 100:1 and trade with a total capital of 100,000 EUROs, the trader with 100,000 EUR can buy USD and get 135,000 USD, if now the currency quote gets to 1.3600, the trader will have 136,000 USD instead of 135,000 USD, that is a profit of 1000 USD and the traders' capital is only EUR 1000. From this example you can see why forex is popular because leverage means traders can make more profit on their capital.
In a forex currency quote there are two currencies, the first and the second:
Base Currency - is the first currency
Quote Currency -is the second currency, this show the price of this currency relative to the first currency.
EUR - Base currency
USD - quote currency
If EURUSD currency quote = 1.3500
It means the ratio of
EUR : USD
is 1 : 1.3500
Therefore it means 1 EUR = 1.3500 US dollars
Because traders always know the first currency is 1 unit, they will just read the currency quote and know it is a ratio of 1 unit of base currency to the "currency quote"
|Currency Pair||Base Currency||Quote Currency||Currency Quote|
Currency Quote Movement
The smallest movement in a currency quote is known as a pip, but as an update to the currency quote movement the smallest movement now is know as fraction of a pip or pipette.
Pip = 4 decimal places
Fraction Pip = 5 decimal places
1 pip is equal to 10 dollars for a standard lot, 1 pippete is equal to 1 dollars for standard lots.
1 pip movement = 1.3500 to 1.3501
equal to 0.0001 USD
0.0001 * $100,000(1 standard lot)
For new traders they may confuse the fifth decimal place to be the pip, no this is a pipette, the pip is the 4th decimal place. Therefore is another trader says take profit of 40 pips and your broker is using pipettes then to set your take profit you will add one decimal place and your take profit will be 400 pipettes.
Fractional Pips Currency Quotes on Trading Platform: 5 decimal places currency quotes
Forex Currency Quotes Example - Metatrader 4 Platform