Forex FX - tutorial

Forex FX - Online Tutorial Pt. 4 

1. Foreign Currency Quotations – How we quote foreign currencies

In foreign currency exchange market (forex, FX) the participants institutional investors and private individuals participate in forex transactions to take profits cause currency exchange fluctuations or to hedge their currency assets.  

Currency exchange rates must be quoted to facilitate transactions and trading.

Currencies are designated by three letter symbols. The most important and the most traded currencies are the following:

(1). EUR – Euros

(2). USD – United States Dollar

(3). GBP – Great Britain Pound

(4). JPY – Japanese Yen

(5). CAD – Canadian Dollar

(6). AUD – Australian Dollar

(7). CHF – Switzerland franc

(8). NZD – New Zealand Dollar

(9). SKR – Swedish Kroner

The Currency Pairs

Foreign currency quotes are made in currency pairs cause the participants are buying a currency and they are selling another.

As an example we have the following currency pair:

EUR / USD

The first currency is the base currency “Euro” and the second currency is the quote currency.

EUR / USD 

Euro is the base currency

USD is the quote currency

The price, or rate that is quoted is the amount of the second currency required to purchase one unit of the first currency.

Currency exchange pairs are quoted at bid – ask spreads.

The first part – the base currency is the amount of second currency – quote currency you will receive in exchange for on unite of the base currency.

The second part of the pair is the amount of quote currency you have to pay for a unit of a base currency.  

Using an actual forex quote we have EUR / USD spread of

Pair                   Bid Price                   Ask Price

EUR / USD           1, 4310                    1, 4322         

This means that you can buy a Euro at Ask Price (1, 4322) and you can sell a Euro at the Bid Price (1, 4310).

3. How we use foreign exchange quotes for currency rates trading

Exercise 1 – Real forex quote

  

Pair                        Bid Price                     Ask Price

EUR / USD           1, 4310                    1, 4322          

According to the above pair

(A) You can buy the pair at the Ask price

Which means you buy a Euro for selling United States Dollars for 1, 4322 USD.

(B) You can sell the pair at the Bid Price

Which means you sell a Euro for buying United States Dollars for 1, 4310 USD.

I need to highlight that a large number of online dealers may not quote the full exchange rate for both sides for both currencies. We have discussed above the currency exchange pair as:

Pair                       Bid Price                     Ask Price

EUR / USD           1, 4310                    1, 4322         

This pair can be reported by dealers or financial information providers as:  EUR/USD 1, 4310/22.

Obviously, individual participants must be very careful and also to train themselves as best as it’s possible.

Only through knowledge a private individual can build a competitive advantage and achieve serious financial goals in foreign currency exchange market.

                                                                                        Elias Stoikos

Relative Articles 

1. Forex Introduction

2. Forex Tutorial Part 2

3. Forex Tutorial Part 3

Relative resources 

1. Forex in wikipedia