Forex Basics (2)

Forex Basics (2)
Forex Basics (2)

How do you read forex quotes?

As a general rule, each currency is symbolized by three letters, and those letters are the ones we use to indicate the currencies in forex pricing. The first two letters represent the country's name, and the third letter represents the country's currency. for my sake

Examples: AUD (Australian dollar), JPY (Japanese yen), CHF (Swiss franc), and CAD (Canadian dollar).

When trading, trading is usually in pairs of currencies, you buy one currency in exchange for selling another its counterpart.

Most Popular Currency Pairs

  • Euro and US Dollar (EUR/USD) (USD/EUR)
  • US Dollar and Japanese Yen (JPY/USD)
  • US dollar and Swiss franc (CHF/USD)
  • British Pounds and US Dollars (USD/GBP)

The most famous currency pairs traded, are pairs of the most famous active currencies, and the most famous currencies are called “Majors”.

Majors. Currencies List

  • US dollar (USD)
  • European Euro (EUR)
  • Pound sterling (GBP)
  • Japanese Yen (JPY)
  • Australian dollar (AUD)
  • Swiss franc (CHF)
  • The Canadian dollar (CAD)

It is known as the pricing currency. The first currency is called the base currency, while the second currency is called the base currency. When setting rates for currency pairs, The currency pair shows you how much of the quote currency you need to pay against the base currency. In the case of direct pricing, it is The quote currency is the foreign currency.

For example, EUR/USD 3500.1 means you will pay 1 EUR for $35.1 American.

Therefore, the base currency is always equal to one unit of the other. Dominant fundamentals On the foreign exchange market, according to the frequency of use, they are the euro, the pound sterling, and the dollar. Direct pricing occurs when the base currency is the dollar, and the other currency is the US dollar. Pricing. Any pair of aunts, which does not contain the dollar, is called a derivative pair.

So, what happens while trading?

Example: You buy the British pound using the US dollar (GBP/US$),

The value of the pound sterling is expected to rise relative to the dollar. If your prediction is correct and the pound rises, Sterling against the US dollar, then you sell your position (sell Sterling), And you got your profit. 

You have to keep in mind, that in the case of the derivative pairs there is no standard for the quote currency, some put the currency foundation in the beginning, while others put it at the end. How can you, in this case, distinguish a currency from the basis? You have to know at least one of the two currencies, you know in terms of which is more valuable than the other.

Dominant base currencies

  • Pound Sterling - Pound Sterling / US Dollar, Pound Sterling / Swiss Franc, Pound Sterling / Japanese Yen, Pound sterling/Canadian dollar.
  • US dollar / Canadian dollar, US dollar / Japanese yen, US dollar / Swiss franc.

the point

The least possible change in the declared price of the currency. In the forex world, we trade currencies in very small units, Parts of a cent or a euro, etc. All currency pairs consist of 5 significant numbers. And the world falls For most pairs, the decimal point is immediately after the first digit, followed by 4 decimal places, for example, in the EUR/EUR pair One US dollar is equivalent to 3377.1. In this example, the point of the smallest change is in the fourth digit after the sign. decimal point, equal to one point: 0001.0. Therefore, if the quote currency in any pair is the US dollar, Then one point is equal to 1/100 of a cent. The only exception here is in the USD/JPY pair Japanese, so one point is 01.0 US dollars.

Here is a numerical example

You buy EUR/USD, and its quotation comes with five digits, four of which are behind the decimal point, i.e. Price: 3530.1, and you sell later at 3542.1. With this difference you have on the point system +12 points or 0012.0 However, care must be taken when dealing with the USD/JPY pair, as the point in this pair occurs After only two decimal places. Therefore, if you buy USD/JPY at 51.110, and then it goes down to 31.110 and at that point you sold, the difference here will be -20 pips or a loss of 20 pips and what determines Your profit/loss calculation is the difference in trading points.

We mentioned earlier that the quote currency is translated in the form of a certain number of base currency points. For example, pricing EUR/USD at 35.1 means that for every 1 euro you get 35.1 USD. And when it rises the Price of the quote currency, this indicates that the base currency is gaining more strength. That is, you can use a unit One of the base currency to buy a larger amount of the quote currency. On the other hand, if the price of the quoted currency goes down, This means weakness in the base currency.

Supply and demand

There are two prices in forex quotes, one of which symbolizes the supply, and the other symbolizes the demand. Giving is the price that buys The market maker has the currency pair, at that price the trader can sell the base currency to the market maker. Offer price It is located on the left side of the pair's price. On the other side, is the asking price, which is the price that sells A currency pair is quoted by the market maker, ie the price the trader buys the base currency from the market maker. The asking price is on The right side of the price. The asking price is also called the bid price.

Code                       Bid                         Request

EUR/USD              3517.1                    3520.1

Shown above is an example of a quotation, we can buy from a market maker 1 EUR at 3520.1 USD, or We can sell 1 Euro at $3517.1 to the Market Maker.

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