How to read a forex quote

 How to read a forex quote

 It is challenging to any new forex trader to read and understand the forex quote, understanding the currency quotations and how they work in the currency pair trade.

  reading currency quotation is done through what is called currency pairing, when a  currency is quoted ., it  is done in comparison to another  currency , for example, when quoting   US dollar and  Nigerian naira: USD/NGN=150, meaning when you  divide $1 by  N1  you will get 150 unit and one  USD is 150 times higher than a NGN, that means  US$1 will buy NG N150,  when  a currency is quoted like this USD/NGN; the left currency is called the base currency , the slash then the quote currency., the currency value used above is just for simplicity but the actual  quote may be different.

 There two ways of quoting a currency:

·         the direct currency quote: when you consider your domestic currency as the base currency while foreign currency as the quote, for example when you from Nigeria and you are trying to buy the united state dollar, your currency quote should look like this NGN/USD where NGN is your base currency while USD is your quote currency, here the base currency will remain fixed at one unit while the quoted which is USD will be variable.  Therefore your currency pairing would look like NGN/USD = 0.0067.

·         indirect  currency quoting is when  you consider the foreign currency as your base currency while your domestic  currency as the quoted currency, for example  if you are from Nigeria and decided to buy the united states dollar,  then your currency quote should look like this;  USD/NGN, where the USD is your base currency and   NGN is your quoted currency, therefore  in indirect quoting, the base currency which is foreign currency, the American USD  remain fixed at one unit while the quote, your domestic currency which is the Nigerian naira , NGN is variable, your new currency quote should look like USD/NGN =150, the inverse of the direct quote.

 most currency are quoted using the  USD,  for example  USD/JPY, USD/NGN, USD/CD etc , this is why the united states dollar is called the major currency, currency can be quoted against  other currency  and this is called cross currency for example , EUR/GBP, EUR/JPY,JPY/NGN etc.  This cross currency expand the trading possibilities but it is only that trading in cross currency has low volume than the using the major currency.

 in forex trading there is a bid price and an ask price:  bid price is the price  used when selling a currency and this tell how the quoted currency is to be obtained  to get the base currency, for example with USD/NGN, it tells how much  the Nigerian naira to be given to get the US dollar.   while the ask price refer to the amount  the quoted currency has to be  paid to obtained the base currency , for example with our USD/NGN , it means how much the USD  to be given to get one Nigerian naira.  Let’s look at an example USD/NGN= 1/150, here the bid price is $1 while the ask price is N150.