Learning To Read Forex Quotes

Learning to read forex quotes can be a challenge. They present different information than the standard common stock quotes with which most folks are familiar. Should you determine, after spending plenty of time building a forex trading strategy, that you are ready to enter the forex trading market, then you need to make sure that you know how to properly read the foreign exchange trading quotes.

The most elementary piece of information found in forex quotes simply serves to identify what is on the trading block. Forex traders buy and sell money. With this in mind, take a look at some forex quotes and you will see that every quote begins with what's called a cross. This is the amalgam of the two currencies that are involved in the trade. For example, a quote that reads USD/JPY means that the forex quote is valid for someone who wants to use United States Dollars to buy Japanese Yen.

The second part of forex quotes that you need to look at is the pricing portion of the quote. To continue the example from above, if the quote read USD/JPY=117.57, then the trader knows that for every 1 US dollar he trades, he will get 117.57 Japanese Yen in return. While that may seem really simple, there are a few more details of these quotes that the forex trader needs to take note of before making the foreign exchange trade.

Following the initial line of the quote, which contains the two currencies that form the cross and the exchange rate, is another line of information. This is probably more familiar to common stock traders. Bid prices and ask prices, which make up an integral part of forex quotes, function in trading forex much the same way. The bid price is the price at which you can sell the currency. In other words, that is the price that people are willing to pay for it. The buy price is what you will have to pay if you want to buy the currency. There is usually a difference between these two numbers, but it is seldom substantial.

There are over sixty currencies listed on most major forex trading platforms. As you look through the majority of the forex quotes actually traded though, you will notice that over 85% of them include some combination of the US Dollar, Japanese Yen, Euro, Canadian Dollar, Swiss Franc and the Australian Dollar. Known as the majors, these six currencies constitute the backbone of foreign exchange trading. Historically, they are the most heavily regulated, and as a result, the most stable currencies in the world. This stability makes them safer investments than some other currencies. The feeling of security by investors results in the much higher trade volumes.