If you're looking to learn how to read a Forex quote, there are a few things that you should know before you start trying to decipher its meaning. The Forex market works much like the stock market, in that it makes large swings in prices over short spans of time. But because Forex prices are not based on the same principles, there is a need to keep a keen eye out for the subtle differences between an accurate Forex quote and one that is simply a misread.
A Forex quote is designed to show the current trading trends from across the globe, in hopes that the information will be helpful for both traders and investors. In a Forex quote, the current currency pair is frequently followed by a range of bid and ask prices, which will show the spread and the amount of pips or loses between the bid and ask position. Knowing these terms at least a little deeper can help you as you set out to make your first trades as you learn how to read a Forex quote. Here are some terms that can be found within Forex quotes.
A bid price is usually set by the seller and is a price higher than the asking price. This is the value that will be offered at the top of the trading range. Since there is usually a wide range of bids, it's always wise to look into the bids in more than one currency pair. Also, if there are several bidders, it is generally a good idea to use multiple quotes.
An ask price is the lowest bid price a trader will receive for his/her position. Ask prices typically follow a similar pattern to a bid price but can vary by as much as five percent or more. However, there is always a risk that a successful sell order might not be fulfilled, which can cause an ask price to be much higher than the other bid prices.
It's also important to note that the difference between a bid price and an ask price can be very small, which can make it difficult to tell which price to base your purchase or sale on. There are a few factors that will help in interpreting the difference between these two different price points, including the volume of trades that take place in the market, the average volume of trades made within the last two or three days, and whether the trade is an entry or exit.
As you learn to read a Forex quote, you'll eventually come to understand how to recognize key points of interest that can help you make better trades. If you need to know the exact exchange rate between currencies, for example, it will help to use a Forex quote that is based on a major currency pair such as the U.S. dollar and Japanese yen. Using a Forex quote based on the U.S. dollar and Canadian dollars is a good way to determine where to enter a trade, since the Canadian dollar has a tendency to move up and down a great deal less during the trading day.