Reading forex rates is an important part of trading in the foreign exchange market. Depending on the level of training you have, you may understand some aspects of currency pairs. This is meant to be a beginner’s overview to reading foreign exchange rates, with a few tips added in.
Forex Rates Come within Currency Pairs
Currencies are traded in pairs in the foreign exchange market. You buy and sell at the same time. When you purchase the EUR in the EUR/USD pair, you sell the USD. The EUR/USD quoted at 1.30 would mean it takes $1.30 to purchase 1 Euro. The pip value is also expressed in USD, so if you see a 10 pip change you have $10 pips. Pips are the smallest increment that rates can be counted at. There are six numbers in forex rates. If you see a value such as 1.30001 that changes to 1.30002 you have a .00001 change in the pip. It is a very small increment; however, your lot size could be as much as 100,000 for the EUR/USD allowing for a significant profit even on such small change.
*Note: significant is in terms of pennies since it is very possible to make penny profits in forex. Earnings of $12.00 on one trade are a significant pip movement for one trade.
Currency pairs are arranged in a global standard. Never forget that the world has a certain way pairs match up with regards to which currency is which. In a moment we will explain base and quote currency. For now just realise that EUR/USD is the proper way of naming the Euro-U.S. dollar pairing. You would never see it online as the USD/EUR.
Forex rates differ for Japan in terms of how they are written. First the USD pairing with the Japanese Yen is USD/JPY. The quote is always in Japanese Yen. The rates are quoted with at least two numbers before the decimal point and sometimes three. It depends on the current value of the Yen. 94.0001 could be the quote or it might be 104.001. You would never see 9.40001 as the quote or 1.04001.
Forex Rates: Reading the Broker Tables
In the online platform you will trade in you will see forex rates already provided. The table will have the name of the pair at the top such as USD/ZAR. This lets you know the base currency is the USD, since it is first and the quote currency is the ZAR. The quote will be in rands. The first table with a quote such as 8.90004 is the sell price. The buy price is to the right in that table and it might read 8.90006. The sell price is always a little lower than the buy price. Your broker will charge at least a 2 pip fee for their services. You see this in the forex rates by the difference in sell and buy quotes.
Since the quote is in rands, you have to decide if the USD will continue to be stronger than the rand. This is often the case although the rand can increase in value creating a positive pip movement on the quote.
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