Reading a Forex Quote
Reading a Forex Quote: Your First Skill
Before you can place a trade, you need to understand what a forex quote actually tells you. It might look like just a number, but it contains critical information about the relative value of two currencies.
The Structure of a Forex Pair
Every forex quote consists of two currencies written as a pair:
EUR/USD = 1.0850
- Base Currency (EUR): The first currency. This is what you are buying or selling.
- Quote Currency (USD): The second currency. This is the price tag.
The quote tells you: 1 Euro costs 1.0850 US Dollars.
How to Read Price Movements
If EUR/USD Rises from 1.0850 to 1.0900
- The Euro got stronger (or the Dollar got weaker).
- 1 Euro now costs more Dollars.
- If you were Long (Buy), you made 50 pips profit.
If EUR/USD Falls from 1.0850 to 1.0800
- The Euro got weaker (or the Dollar got stronger).
- 1 Euro now costs fewer Dollars.
- If you were Short (Sell), you made 50 pips profit.
Direct vs Indirect Quotes
Direct Quote
The domestic currency is the quote currency.
- For a US-based trader: EUR/USD, GBP/USD, AUD/USD.
- "How many of MY dollars does 1 unit of foreign currency cost?"
Indirect Quote
The domestic currency is the base currency.
- For a US-based trader: USD/JPY, USD/CHF, USD/CAD.
- "How many units of foreign currency does 1 of MY dollars buy?"
Understanding the Quote Panel
When you look at a quote on your trading platform, you will typically see:
| Element | Example | Meaning |
|---|---|---|
| Pair | EUR/USD | Euro vs US Dollar |
| Bid | 1.0848 | Price at which you can SELL |
| Ask | 1.0850 | Price at which you can BUY |
| Spread | 2 | Difference (in pips) = your cost |
| Daily Change | +0.35% | How much the pair has moved today |
The 5th Decimal (Pipette)
Modern brokers often quote prices to 5 decimal places (or 3 for JPY pairs):
EUR/USD = 1.08503
The last digit (3) is called a pipette or point. It represents 1/10th of a pip and allows for more precise pricing.
Practical Example
You see this on your screen:
GBP/USD: 1.26503 / 1.26520
- Base: GBP (British Pound)
- Quote: USD (US Dollar)
- Bid: 1.26503 (your sell price)
- Ask: 1.26520 (your buy price)
- Spread: 1.7 pips
- Interpretation: 1 Pound = 1.26503 - 1.26520 US Dollars
If you buy at 1.26520 and the price moves to 1.26620, you made 10 pips profit.
Understanding quotes is the absolute foundation. Once this clicks, everything else in forex becomes much easier.
Pip Value Calculator
Required for accurate calculation.
Based on Standard Lot (100,000 units)