How to Read and Interpret a Forex Quote?
In forex, a quote consists of a pair of currencies, one related with another. Among these two currencies, the first currency is the base currency and the second currency is the counter currency.
For example, EUR/USD is a quote consists of a pair of Euro and US Dollar. Among these two currencies, the first currency is the base currency and the second currency is the counter currency.
If EUR/USD is trading at 1.29, it means that you have to pay 1.29 US Dollar (counter currency) to buy one Euro (Base currency). This is how you have to buy or take a long position.
In the case of a long position, you are buying the base currency by selling the counter currency. On the other hand, if you sell or take a short position, you are buying the counter currency by selling the base currency.
In a forex quote, you will see two prices. One is the bid price and another is asking price. The bid is the buying price at which buyers are willing to buy. Asking price is the selling price at which sellers are willing to sell.
There is always a gap between these two prices. This gap of price is spread. This spread can be 1 pip to 15 or higher depending on the currency pair. For major currency pairs, this spread is small (generally 1-3 pips).
In exotic or minor pairs, this spread is high. This spread is the trading commission of a broker. This spread depends on the rate determined by the price providers and liquidity of the market.
When the market or pair is high volatile, then spread is higher. On the other hand, when the market is low volatile then this spread is lower.