How to read a forex quote

A Wealth of Knowledge

Yonela Ngulugulu 12 Sep 2017

How to read a forex quote...

Firstly what one needs to understand is that currencies are traded in pairs. Essentially, one is comparing the value of one currency against a value of another currency. The only way one would know that the value of something is too cheap or too expensive is by comparing it to something else. In Forex, we know that a currency is going to depreciate in value by comparing it with a currency that seemingly is appreciating in value. Otherwise, there is nothing wrong with the USD on its own. However, the minute you compare it with another currency of a certain country that is where now one can say USD is going to be stronger than a certain currency. It is for this reason why the Forex market is effectively a "Foreign Exchange" market. It is because when one is buying, they are selling something simultaneously (exchange) and vice versa. For instance when an American tourist visits South Africa, the first thing they ought to do is exchange their currency, using the current exchange rate which is determined by the Forex Market ( the trading activity of that day). When they exchange their Dollars to Rands, they are selling their currency "USD" and buying the Rand "ZAR" simultaneously. Buying one thing in exchange for another.

Forex chart

So now that one understands that part, how do you then read a Forex quote? As already stated above, currencies are quoted in pairs i.e USD/ZAR. On this currency pair, one is comparing the value of USD in relation to that of the ZAR. The currency on the Left is a base currency (product) and the currency on the right is the quote currency (price). So how much South African Rands (quote) will it cost to buy one Dollar (Base)? The base currency is always in a quantity of 1, which is "USD" in the case of "USD/ZAR". So how many Rands would one need to purchase 1 Dollar, or how much will it cost in Rands to buy 1 Dollar? That will be the current market price which then fluctuates over time with the current trading activity. That is why the current market price cannot be fixed to a certain price as there are traders "buying" leading to prices going up, and there are traders "selling" leading prices going down. Such trading activity is the reason why the current market price fluctuating every second or so.

reading a currency quote

So now, how do you relate this on the chart? firstly, the chart reflects appreciation and depreciation of value in the price of the base currency, "USD" in "USD/ZAR". So if for instance, the overall trend is to the upside, uptrend. This is means that the Base currency is appreciating in value, and if the overall trend is headed downwards, then the Base currency is depreciating in value, Get it?. The uptrend, Base currency appreciating, Downtrend, Base currency is depreciating in value. The quote currency is the price it will cost to buy the Base currency. Got it?

So now, if one is buying USD/ZAR they are buying USD and selling then ZAR, and when a trade is selling the currency pair "USD/ZAR" they are selling the USD and buying the ZAR simultaneously. Remember the analogy about tourist exchanging

Reading a Forex Quote

On the USD/ZAR chart above the chart is in an upward trend. This means that the value of "USD" (the product/Base currency) is going up. Meaning over time it will take more and more Rands to buy just one "USD". Get the gist of things? So the currency of on the right side (ZAR) is the price or the amount it will take to buy the base currency on the left (USD).

Now to reading the currency quote itself, depending on the broker one is using, there are five digit brokers on four digit brokers. So, for instance, the current price may be 13.10104. So now, the first number is the amount in whatever the currency is on the left side of the quote USD/ZAR. The first number will be the amount of Rands, then after the comma, the first two digits are the cents, then pips and pipettes. In essence, it is going to cost 13.10104 Rands to buy one USD. Rands.cents pips pipettes.

Okay, lets looking at a different example using a different currency pair, perhaps a major currency pair this time. Say for instance EUR/USD, say the currency pair is trading at price 1.07430. So now in this example, our product or our base currency is "EUR" meaning when you click "buy" on the platform trading the EUR/USD you will be buying EUR'S with the US. Dollars. Makes sense? Remember, whatever is on the left side is our "product" which is always in quantity of 1, and on the right side is the price of that product or an amount required in a certain currency to purchase that product. So in the example of EUR/USD when clicking "buy" or "sell" you will be buying what is on the left side which is "EUR". You will be using the currency on the right side, "USD" to buy such. So if the price was 1.07430. this means it is going to take one Dollar seven cents forty-three pips and zero pipettes.


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