Forex Converter & Forex Quotes

Online forex trading allows a person to trade currencies with his computer that is connected to the Internet. This is a convenient way to directly trade currencies and hopefully make a profit in the process. Basically, a trader will want to make an educated guess as to which direction that a particular currency is moving relative to another currency. For example, if he is able to predict based on a number of indicators that the euro will strengthen against the dollar, he can buy euros with his U.S. dollars and then wait for the time when the euro's value will indeed rise. At that moment, he will be able to sell the euros that he is holding for a profit.

However, to be able to make correct decisions, one must know how to read and understand forex quotes. First of all, forex trading always involves a currency pair. A standard notation has been developed in which the first three characters indicate the base currency and the second set of three characters show the quote currency. When you are buying a currency pair, you are buying the base currency and if you are selling a currency pair, you are selling the base currency.

Let us consider an example. If you are buying EUR/USD, this means that you are buying euros and at the same time you are selling U.S. dollars. It also means that you expect the euro to strengthen against the dollar so that when this occurs, you can sell the euros and make a profit.

To complete a quote, a certain value is presented after these characters. For example, the quote is EUR/USD = 1.2657. The value on the right indicates the ratio of the quote currency over the base currency. Therefore, the above example means that you will have to pay 1.2657 U.S. dollars for every euro.

Actually, a forex quote is a bit more complicated than the above example because there are two prices that you need to understand for each currency pair. One is the bid price and the other is the ask price. This is how forex brokers earn their income. To do this, they sell currencies at a price that is slightly higher than the price at which you buy them. This is called the spread. Thus, the example above may be written as EUR/USD = 1.2657/1.2659 or simply EUR/USD = 1.2657/9. For this example, you will be selling at the ask price of 1.2657 and you will be buying at the bid price of 1.2659. Therefore, the forex broker will get 0.0002 or 2 percentage increment points (pips) per euro that is traded.

It may also be helpful to know the commonly traded currencies, which are known as the major currencies. These include the U.S. dollar, Euro, Japanese yen, Swiss franc, British pound, Australian dollar, and Canadian dollar. Meanwhile, the four most commonly traded currencies are the EUR/USD, USD/JPY, USD/CHF, and GBP/USD. These are the most liquid currencies and therefore offer the best trading opportunities.