Accurate Currency Quotes For Forex Traders
There are seven major currencies in the modern forex market. Abbreviated with 3 letter codes, the major traded currencies are the; EUR (European Euro), GBP (United Kingdom Pound), USD (US Dollar), AUD (Australian Dollar), JPY (Japanese Yen), CHF (Swiss Franc), and CAD (Canadian Dollar). When these currency quotes are displayed on the forex market, they are expressed in units called currency pairs. The commonly traded pairs, known as the majors, are; EUR/USD, USD/CAD, GBP/USD, USD/JPY, USD/CHF, and AUD/USD.
Currency pairs explained.
A currency pair looks something like USD/EUR=0.6871. The first unit, in this case the US Dollar, is called the base currency. It always has a value of one. The second unit, called the quote currency, is the value that changes. The number listed is the amount of the quote currency it would take to buy one unit of base currency. In the example above, one US Dollar could be purchased with 0.6871 Euros. These quotes are the centerpiece which the forex market revolves around.
Should the currency quote above switch so the Euro were first, the pair would look something like EUR/USD=1.4563, or $1.4563 for a single Euro. Getting the pair in the right order is important, otherwise an investor could be in for a shocking financial loss. When the currency quote price rises, it shows that the base is strengthening. A decrease in the quote price shows a weakening currency. Quotes are not absolute. The strength of a currency is relative to another. While the Yen may be weakening to the Euro, it could be strengthening when compared to the Franc. The relativity of money is what makes the forex market so appealing.
When viewing currency quotes, an investor will see two values. They will show the bid price, what the buyer will pay for the base currency, and the ask price, the rate a seller will sell the base. The difference between the bid price and the ask price is called the spread. The spread must be factored into a trade to determine the financial gain or loss of a trade. The bid/ask price will look something like EUR/USD 0.6871 0.6893.
Many factors determine the price of money. The interest rate, inflation, and even the political stability of the issuing countries affect the strength. Government intervention can also affect the values. Flooding the market with currency will lower the price, while buying it up will increase the price. Overall, governments can't completely control the value of money. The flow of the market will ultimately determine the currency quote values. The dominance of the free market makes investing in forex a fair investment medium. The governments can't fully influence the market, ruining the trading systems investors have developed to turn profits in the foreign exchange market.
Peter Flemming is a professional Forex Trader and is a staff writer for this forex website about learning forex trading and trading education. Download a copy of our free forex PDF book today!You may republish this article on the condition that it is not edited and all html links to our website are kept intact. TradingProfits.org Â© All Rights Reserved.
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