This article looks at the reading of the foreign exchange rate quotes.
There are many new traders who are confused by the quotes that they get for the foreign exchange rate. If you are looking to trade the foreign exchange rate then you need to understand the quotes that you are getting. You should consider what makes up the quotes and the differences between the direct and the indirect quotes. All of this information will ensure that you are able to trade with confidence and that you are able to make a profit on the forex market.
The Reading of a Foreign Exchange Rate Quote
When you get a foreign exchange rate quote you are going to be looking at the price of one currency when compared to another currency. This is due to the way that you trade on the market. The first step in understanding the quote that you get is to look at the make-up of the quote. If you are going to be looking at a quote for the US dollar and Euro pair then you will be getting a quote that looks similar to this: USD/EUR = 1.2300.
There are a number of parts that you need to consider when you look at this quote and that you need to understand in order to trade. The listing of the currencies is the currency pair that you are going to be trading. You should consider what the placement of the currency in the currency pair means.
When you look at the placing you should consider the meaning of the currency before and after the slash. The currency that is placed before the slash is the base and the currency that is after the slash is the counter. The base currency is the one that will always have a value if 1 while the value of the counter currency will always change.
The Direct and Indirect Quotes
There are two types of quotes that you are able to get with the currency pairs. These are the direct and the indirect currency pair quotes. It is important that you understand what the differences are and what this will mean for your trading.
The direct quote is a simple quote that you get with a currency pair that has your domestic currency in it. When you get a direct quite the base currency is going to be your domestic currency. The indirect quote will have the domestic currency as the counter in the quote. The currency that is being used as the domestic currency will affect which values are being changed.
This means that with the direct quote the counter currency is the one that will vary. However, with an indirect quote it is the base currency that will vary. This can affect the way that you trade on the quotes that you are getting.
When you trade on the spot market you will be completing most trades with the base currency being the US dollar. If you are located in the USA then you are going to be looking at direct quotes. However, if you are not located in the USA then you are going to be looking at indirect quotes.
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