Reading the currency trading quotes

So, it`s time for some math! Don`t be scared, we are not gonna write pages of mathematical formulas or draw triangles and pyramids, but we have to see and understand some Forex formulas, which are used every day by the traders and the brokers. For example, have you ever seen a quote like EUR/USD= 1.3318? Do you know how to read that? Well, if you don`t, it`s not a big deal, because now you will learn all you have to know about Forex quotes. First of all, let`s explain exactly every component of the formula: EUR, as you know is the euro and USD is the American dollar. The first currency, in this case, EUR, is the base currency, and the second one, the USD is the quote currency. As you already know, currencies are always quoted in pairs, like EUR/USD, or GPY/GBP. So, this is a pair. Why does this happen? Well, because in the Foreign Exchange Market currency trading, each transaction involves two actions: buying one currency and selling another. When buying, the exchange rate shows you how much do you have to pay in units of the quote currency to buy one unit of the base currency. When you are selling, the exchange rate tells you how much you get in units of the quote currency for selling one unit of the base currency. So, in the example above, we can say that you have to pay 1.3318 U.S. dollars to buy 1 euro, or, if you`re selling, you get 1.3318 U.S.dollars when you sell 1 euro. Buy or sell It is very important for a beginner to know how to read Forex quotes, because that`s how you decide which currency is better to buy or sell. Another thing that you have to determine is if you want to buy or sell. In the first case, you will practically buy the base currency and sell the quote currency. This means that you are predicting that, in a short time after buying, the base currency will increase its value and, when you will sell it, you`ll get profit. In the trader`s language, this is called “going long” or “taking a long position”. Anyway, long=buy. If you want to sell the base currency and buy the quote currency, then you expect the quote currency to rise in value, for the same reason. Your purpose is to earn money. So, if you choose this option, you can say that you are “going short” or you are “taking a short position”, because short=sell. How to make the decision? You have to be sure of your choice, so, before making any big decision, you have to study the market, the currency fluctuations and the report between bid and ask. Generally, the Forex quotes are quoted with 2 prices: the bid and the ask. The bid is almost always lower than the ask price. So, it is recommended to buy the base currency at the bid price in exchange for the quote currency, only if you have the certainty that the bid is the best available price on the market. You should sell the base currency against the quote currency at the ask price, if, as in the previous case, the ask price is the best available price for you.