The quotes in Forex or the prices of the currency pairs are the basis of all the operations, the studies, the strategies and the analyses carried out on this field. In this market, when it comes to the quotation of a currency we mean the quotation of one currency against another. When it comes to EUR/USD For example you can very well in a relationship against each other, or euro versus dollar.
These quotes are expressed by two numbers, one higher and one lower.
The lowest number is also called “money” or “bid” and represents the price at which the intermediary (market maker) is willing at any given time to buy the currency in the numerator.
The highest number instead is called “letter” or “ask” and represents the price at which the intermediary (market maker) is willing to sell at any given time the currency in the numerator.
The difference between money and letter (and therefore between bid and ask) is called a spread. This difference represents the broker’s earnings on the transaction, which is the only transaction cost in online Forex.
So, for example, if we have 100,000 EUR/USD (then 100,000 euro against the dollar) we can have a BID-type quotation of 1.3500 and an ASK-type quotation at 1.3502 where the difference in 0.0002 will represent the spread. The broker will buy at 1.3500 and will sell at 1.3502.
In this case, if for example we want to invest on the euro, we will buy the EUR/USD i.e. “long” and gain if the price of the euro will rise.
On the contrary, by opening a short (short) position of sale, we will point to the downside and then gain if the price of the euro will fall.
Earnings and losses are always expressed in dollars, USD, and in general currency in the denominator.
Base currency and quoted currency
We will shoot around for a while but it is better to make the point of the situation and to fix in the head certain concepts and make them as much as possible. The terms “base currency” and “quoted currency” or “counter”. They are very used in the field, especially “base currency” or “base currency”. If we take the EUR/USD currency pair as an example, the base currency is the EUR. In general, the base currency is that placed in the numerator, which is the first that is read in the currency pair.
BID is the purchase price of the base currency account the quoted currency
ASK is the sales price of the base currency against the quoted currency.
So remember that to give a definition we always use the base currency as a reference.
Using the Forex trading platform of a broker (topic on which we will return in more lessons and passionately), you can find a purchase price (BID) and a sales price (ask) for each currency pair. The prices will be different and the difference (spread) between them represents the earnings of the broker on the single operation.
On each trading platform you can visualize the real-time chart of the base currency (bid) but it is not said that you can find it even of the quoted one, which is not important anyway, because even if you decide to “sell” you can do Reference to the same graph of the bid, of course in the hope that the quotation goes down.
An example of trading platform for Forex is the famous Plus500.
Go to the next lesson – Forex brokers