How to Read Foreign Exchange Rates?Reading foreign exchange rates can be confusing when you don’t know what the terms and numbers mean. What is a currency pair? What’s the difference between the bid and ask price? These are some of the questions you can only answer when you can read foreign exchange rates the right way.
Learning the language of forex is a must if you want to be a successful trader. It’s easier to strategize, experiment, and arrive at an informed decision when you fully understand the concepts surrounding foreign exchange.
Read on to know the most important terms that will help you decode charts when you check forex live rates at your most trusted forex website.
Currencies are quoted in a pair because you will need to sell a currency to buy another or vice versa. Therefore, a currency pair compares the value of one currency against another one and shows how much of the quoted currency is needed to buy one unit of the base currency.
The currency on the left (EUR) is the base currency, while the one on the right (USD) is the quoted currency. The base currency is always fixed at one unit, while the quoted currency is the equivalence of one base unit when traded into the other currency.
Using the sample quote above, you will need to sell US$1.1339 to buy €1.00. On the other hand, you will get €1.00 when you sell your US$1.1339.
Direct Currency Quote vs Indirect Currency Quote
There are two types of a currency quote – direct and indirect. A direct currency quote is where a domestic currency is the quoted currency. Here, the domestic currency varies while the foreign currency remains fixed at one unit. With indirect currency quote, the domestic currency is fixed at one unit while the foreign currency is treated as the variable.
Some currency quotes do not have a U.S. dollar in the pair. This is called a cross currency, and this allows one foreign currency to be traded for another without the need to exchange the currency into U.S. dollars.
Cross currency pairs give you more trading options, but the caveat here is that these pairs are not as popular as the ones that involve the U.S. dollar.
Here are samples of cross-currency:
Bid and Ask
When you start trading currencies, it’s important to know which price you must look at. There are two concepts here—the bid price and the Ask price. Simply put, Bid is the buy price while ask is the Sell price.
If you want to buy a currency, you must look at the Ask price. This gives you the amount of quoted currency that you need to pay to buy one unit of the base currency in the pair. On the other hand, the bid price is the one you check when selling units of the base currency. It gives you the amount which the market will pay for the quoted currency in the pair.
The more you know about forex, the better you can trade. Have a constant thirst for new knowledge about forex to expand your trading skill set such as decoding forex live rates. You have several forex websites and blogs to access a huge amount of information and data that can help expand what you know about forex. Remember, a successful trader does not stop learning.