Friday, November 7, 2008
Price Quotes: Base Currency / Quote Currency
All transactions are based in pairs, buying one and selling another. The first currency quoted is called the base currency, while the second one quoted is called the quote currency. As an example, here is a typical currency quote: EUR/USD 1.5280
In this example, the base currency (EUR) is the Euro Dollar and the quote currency (USD) is the US Dollar.
So, using this example (if you were buying), the quote of 1.5280 means that you would have to pay 1.5820 US Dollars to buy 1 Euro Dollar. Conversely, if you were selling, you would receive 1.5280 US Dollars for each Euro Dollar you sold.
Spread
This is also called the bid/ask spread. This is the price difference between what a currency pair is being bought and sold for?or a difference between the bid and offer price.
The bid is the price at which the Forex market maker is willing to buy the base currency in exchange for the counter currency. On the other hand, the ask price is the price at which the Forex market maker
is willing to sell the base currency in exchange for the counter currency.
Remember that all trades involve the simultaneous purchase of one currency and the sale of another.
Spreads will vary from pairings to pairings. This spread is where your broker will make their money. Every time you make a trade, they make the spread. This is why they charge no commission ? because there is no need for it.
Depending on the broker and the pairings, you will find spreads from as little as 3-1 pips -- the smaller the spread, the better off you will be.
For example, a broker may have a 1 pip spread for the EUR/USD pairing, which means that a typical bid/ask quote would look something like this: Bid: 1.5280 Ask: 1.5281
Using that example, if you were to buy, you would be buying at 1.5282 and if you were to sell, you would be selling at 1.5280
When you buy a pair, you have the expectation that the base currency will do better than the quote currency.
For example, let's assume that we have done our homework using our technical and fundamental analysis and feel that the US economy is headed for a recession and that the Euro Dollar is going to gain value over the US Dollar. We see the quote: EUR/USD - Bid: 1.5280 Ask: 1.5282 We are confident about our analysis so we buy (at 1.5282) and watch the trade take place. We get news that the US Fed chairman has made some public statements that he is worried about the US economy and could be headed towards a slight recession. We look again and the quote is now: EUR/USD - Bid: 1.5300 Ask: 1. 5302 and decide we are going to take our profits and sell our Euros, now receiving 1.5300 Euros, making a profit of 18 pips on that trade.
Customer Agreement
ForexGen presents specialized Forex online trading services. We support trading in variable currency pairs, available services 24 hours a day most of the week. Real time prices are supplied to facilitate the trading and make it more quick and efficient. Our trading terms & conditions are the most competitive trading terms & conditions for various trading kinds which represent our appreciation to every client starting from the smallest customers. ForexGen is re-setting professional trading technology, by a continuously tracing the competence offers and modifying our trading conditions and provided platforms.
0 Comments:
Post a Comment