How to Read a Forex Quote

As a general rule, each currency has a three letters symbol, which is used in Forex quotes. The first two letters identify the name of the country while the third letter identifies the name of that country’s currency. For example: AUD (Australian dollars), JPY (Japanese yen), CHF (swiss francs) and CAD (canadian dollars).

When trading currencies, the trade is always done in pairs and so when you buy one currency, another currency is simultaneously being sold.

The most commonly traded currency pairs are

• Euro and US Dollar (EUR/USD)
• US Dollar and the Japanese Yen (USD/JPY)
• US Dollar and Swiss franc (USD/CHF)
• British Pound and US Dollar (GBP/USD)

The most commonly traded currency pairs are made from the most common and actively traded currencies which are called the “Majors”.

The list of currencies below consists of the Majors

• USD (US dollars)
• EUR (European Euros)
• GBP (United Kingdom pounds)
• JPY (Japanese yen)
• AUD (Australian dollars)
• CHF (Swiss francs)
• CAD (Canadian dollars)

When quoting currency pairs, the first currency is referred to as the Base currency while the second referred to as the Counter or Quote currency. The currency pair is used to represent how much Quote currency is required to exchange for the base currency. In a direct quote, the quote currency is the foreign currency.

Example: EUR/USD 1.3500 mean that one Euro is traded for 1.35 USD. As such the Base currency is always equal to 1 monetary unit of exchange. The dominant base currencies are, in order of frequency, the EUR, GBP, and USD. When a currency is quoted against the US Dollar it is called a direct rate. Any currency pair that does not trade against the US Dollar is referred to as a cross rate.

So what takes place once a trade is taking place?

Example: you buy British Pounds with the US Dollars – (GBP/USD), anticipating, the Pound to increase in value relative to the Dollar. If the Pound rises relative to the Dollar, you sell the position (you Sell British Pound) and have made a profit.

Keep in mind that there are no standard cross-currency Quotes. Some have the base currency on the top while others have it on the bottom. So how can you tell which is which? You need to know at least one pair of currencies and which one of the pair is the more valuable.

Dominant Base Currencies

• Euro – EUR/USD, EUR/GBP, EUR/CHF, EUR/JPY, EUR/CAD
• British Pound – GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD
• US Dollar – USD/CAD, USD/JPY, USD/CHF