It can look confusing to see a quote, but it is
actually quite easy to understand. Your
quote is always listed in a pair of currencies with the first currency being
the base. For instance, in USD/EUR, the
USD is the base. The base currency is
always 1. The second number is how many
euros it takes to make one US dollar. It
is the exchange rate for the two currencies.
The
Bid Price and the Ask Price
You will often see a quote with two numbers. For instance, EUR/USD 1.301/1.324 The first
number is the bidding price, which is the price you will sell the
currency. The second number is the
asking price, which is the price you will buy the currency. The difference between the two is the spread.
The
PIP
You will often hear about trading in pips. It is the smallest amount in a quote, the
last decimal place. The amount of a pip
can vary, depending on the number of decimal places used.
Learning
Currency Pairs
Since the Forex market is USD-centric, which means
that the US dollar is involved in eighty percent of the trades, learning about
currency pairs where the dollar is used is beneficial for new traders.
The top pair traded is the EUR/USD, which is the
euro and US dollar. Coming in second is
the dollar and the Japanese yen or USD/JPY.
The third most traded currency pair is GBP/USD, the British pound and US
dollar.
There are seven major currencies and those are the
best to learn and begin trading with.
They are identified by three letters; the first two indicate the country
and the last one is the name of the currency.
It is advisable to begin trading with the currency
in your own country first, since it is easiest to understand its value and the factors
that affect it. Once you have mastered
that currency, you can branch out to others.
Each currency has its own unique behavior and it is essential that you
learn that before you start trading.