Tuesday, December 6, 2011

Forex Currency Quotation How They Workk

Forex currency  pairs are quoted in relationship  to each other, so the value of one currency is  reflected thru out  the value of  the another currency.
example the exchange rate quote between USD/CAD = 1.0381 at the  writing of this  article.                                
USD/CAD  is called a currency pair ;. the currency to the left of the slash (/) is the base currency ; the currency  on thr right  of the slash (/) is the quote  currency.   Base currencies are always equal to one (1)  unit in the other currency. This simply means  1  US  dollar  will buy   1.0381 Canadian dollar.                          All  currency pairs are created and traded in  financial markets using these same  basic techniques on a world wide basis
Most currency pairs are traded against the US  dollar and most frequently    the US  dollar is   the  base currency in the  pair..In the market place this  is called  a direct quote
Other base currencies are the British  pound, Australian dollar, New  Zealand  dollar and the Euro   dollar.These Base currencies are traded against the US dollar.
example euro/usd where the euro is the base currency. In this case the US  dollar is the quote currency and the exchange rate is refered to as indirect quote.. As of this writing,   1  euro  dollar is equivalent to 1.3490  US dollar.. In general all exchange rates are quoted out to 4 digits; example 1 euro  dollar  = 1.3490  usd

Bid -Ask  Tidbits For Forex
As with  all financial markets when  forex currency pairs  are traded   Bid  prices for buying and Ask prices for selling are  how the market works. The buying and selling of these currency pairs are in relationship to the base currency    Buying a currency pair is going long.. Selling a currency pair is going short                                   
example  usd/cad = 1.0381    bid=1.0381  and ask = 1.0386. Buying the usd/cad  dollar means you will be looking to see how much the market will charge for 1 us  dollar. In this case you would pay the asking price of 1.0386 cad dollar for 1 us dollar..This same pair  usd/cad  can  be sold  for bid price of  1.0381.
Spreads – Pips Tidbits  For Forex
The difference between Bid price  and Ask price are  called the spreads.. In the usd/cad examples above the spread is 1.0386 – 1.0386 = 0.0005  or 5 pips. Pip is the smallest unit/amount that prices can move up or down in any currency quote.
In the US dollar ,British pound, Swiss franc and Euro dollar  one  (1 ) pip = 0.0001 … In japanese yen 1 pip = .01                                                                                                                                                                       
Most  currency pairs trade within a trading range of 150 – 200 pips per day.

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