The (Foreign Exchange) Forex Trading Market Explained.


How to Read FOREX Quotes

 Understanding FOREX quotes essential to FOREX trading

Currency prices are determined by a number of factors, the most important of which are economic and political conditions in the issuing country.  Political stability, inflation, and interest rates are all factored into the price of any currency.  In addition, governments can try to control the price of their currency by either flooding the market (to lower the price) or buying extensively (to raise the price).

Because of the immense volume of FOREX, however, it is impossible for one force to control the market for any length of time.  Market forces will prevail in the long run, making FOREX one of the most open and fair investment opportunities available.

FOREX trading symbols used in the quotes

Each world currency is given a three letter code which is used in FOREX quotes.  The most common currencies are USD (US dollars), EUR (European euros), GBP (United Kingdom pounds), AUD (Australian dollars), JPY (Japanese yen), CHF (Swiss francs) and CAD (Canadian dollars). 

Prices of foreign exchange are indicated by FOREX quotes in pairs of currencies.  The first currency is the 'base' and the second is the 'quote' currency.  In this example:

 USD/EUR = 0.8419

...the currency pair is US dollars and European euros.  The base currency (USD) is always at '1' and the quote currency shows how much it costs to buy one unit of the base currency.  In this example, 1 US dollar costs 0.8419 euros. 


 EUR/USD = 1.1882

...tells us that it costs 1.1882 US dollars to buy 1 euro.

When the price of the quote currency goes up it indicates that the base currency is becoming stronger – one unit of the base currency will buy more of the quote currency.  If the quote currency falls, however, the base currency is becoming weaker.

FOREX quotes are seen in 'bid' and 'ask' prices.  Bid is the price that buyers will pay for the base currency (while selling the quote currency), and ask is the price that sellers will sell the base currency (while buying the quote currency).
 Symbol Bid  Ask 
 USD/CAD 1.2392 1.2397 

This chart tells us that we can buy one American dollar for 1.2397 Canadian dollars, or sell one American dollar for 1.2392 Canadian dollars.  The most commonly traded currencies pairs are the 'Majors' – GBP/USD, EUR/USD, AUD/USD, USD/JPY, USD/CHF, and USD/CAD. 

We often see exchange rates listed in cross currency charts that list many different currencies and their values against each other.  An example of such a chart is seen here:

  US $  Ca $  Euro  UK £   
 US $ 1.00000 1.24060 0.83935 0.56870 
 Ca $ 0.80606 1.00000 0.67657 0.45841 
 Euro 1.19140 1.47805 1.00000 0.67755 
 UK £ 1.75840 2.18147 1.47591 1.00000 

In this chart, the currencies listed down the left side of the chart are the base currencies and the currencies at the top are the quote currencies.  We can convert the chart above into currency pairs by following the row beside the base currency.  Using US dollars as the base currency we get the following currency pairs:

 USD/CAD = 1.24060
 USD/EUR = 0.83935
 USD/GBP = 0.56870

...which tells us that one US dollar is equal to the corresponding value of the quote currency.  To find the opposite pair e.g. CAD/USD follow the Canadian dollar row to the US dollar column -  CAD/USD = 0.80606 (one Canadian dollar is worth 0.80606 US dollars).
There is no standard for cross-currency charts – some have the base currency on the top and some have it on the side.  How to tell which is which?  You need to know at least one pair of currencies and which one of the pair is more valuable.



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Introduction to Online Forex Trading
Current Forex Currency Rates
Forex Trading
How to Get Started In FOREX Trading
FOREX versus Futures Market
FOREX versus Stocks
FOREX Trading Philosophy
Fundamental Analysis In Forex Trading
Forex Technical Analysis - Part 1
Forex Technical Analysis - Part 2
FOREX Trading Strategies
Trading Currencies on Margin
Currency Option Marketplace
FOREX Signals
How to Read FOREX Quotes
Calculating FOREX Profits and Losses
Risks of FOREX Trading
FOREX Training
FOREX Trading Software
FOREX Brokers
FOREX Glossary
Forex Updates and Training
Crash Course in Forex Education
How to Recognize Patterns in Forex Trading Markets
Defining Exotic Currencies and Their Impact on Forex Markets
Defining Trading Trend and Ranges in Forex Trading
Mind Games – The Psychology of Forex Market Trading
Crossing Currency - What’s This Mean to Forex Traders
Money Management Basics for Forex Traders
Choosing Your Forex Broker
Expensive Beginner Forex Trader Mistakes
The Elliott Wave Theory for Forex Markets
Failsafe Facts to Guarantee Failure in Forex Trading
Five No Nonsense Strategies in Forex Trading
Global Expansion and It’s Reaches within the Forex Market
Hedging in the Forex Market
The Important Ways to Keep From Losing in the Forex Markets
An Overview of the Euro’s Performance in the Forex Markets
Six Trading Tips for the Forex Newbie
The Lowdown on Day Trading
Interpreting How Interest Rates Drive the Foreign Exchange Markets
The Basics of the Bollinger Band Technical Indicator in Forex Markets
Relative Strength Analysis in Forex Trading
The Basics on Understanding Forex Options
Forex Charts – What Are They and How Do You Read Them
Interpreting the Future of the Oil Marketplace and How It Affects Forex Trading
Top Five Economic Indicators that Drive Forex Trading
Rules for Trading in Forex Markets
How Does the Japanese Yen Stack Up Against the US Dollar in Forex Markets
Pivot Points in Forex
The Ins and Outs of Trying Out a Forex Demo Account
The Top Currencies to Watch in the Forex Trading Game
Defining Moments Regarding Trading Trends and Ranges with Forex
Top Ten Basic Terms in Forex Trading and Their Definitions
Forex Folklore Investment Myths in the Market
Five Economic Driving Forces that Influence Forex Trading
Day Trading All You Wish You Did Not Have to Know
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Forex Relative Strength Analysis
How Forex Quotes Can Influence your Trading Tactics
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