Foray into Forex Quotes
When you are just starting out in speculation with Forex, you perhaps don't have to pull your hairs to understand Forex Currency quotes. But things are different for the traders who have prior experience of trading in other markets. In stock markets, company prices are quoted simply in points and percentages. But in forex, some extra things come to play. Currency pairs, Currency types, bid price, ask price and Pips. When traders come to forex, those may seem like aliens for them. In this article, we'll keep discussion limited to currency pairs and currency type. Later, I'll try to explain the other aspects - pips, ask price, bid price, spread.
Currency Pairs and How they are traded
When looking at any Forex quote, you'll notice that all currencies are quoted in pairs. Such as the Euro/US dollar pair or the US dollar/Yen pair. This is because when you buy or sell currencies, you're buying one and selling the other. The currency listed before the slash is the base currency. This is the currency you intend to buy or sell. The currency listed after the slash is called the quote currency. This is the price you're paying to buy one unit of the base currency. For example, suppose the quote for the Euro/US dollar pair is 1.3560. In this instance, the Euro is the base currency and the US dollar is the quote currency. To buy one unit of the base currency the trader will have to pay 1.3560 in the quote currency. Conversely, if the trader wishes to sell one euro he would receive 1.3560 US dollars.
Traders buy the Euro/US dollar pair if they believe the Euro would increase in value relative to the dollar. Buying the euro-US dollar pair in this way is called going long the pair. Again, if they believe the value of the euro will go down relative to the dollar, they would sell the Euro/US dollar pair. Which is called going short the pair. In this case, traders are borrowing that currency that they wish to sell from their broker. When the price drops and the traders feel this the end of a bearish trend, they buy it back, taking the profit from the price gap.There are many currency pairs for traders to choose from when making a trade in the forex market.
Currency Pair Types
Major currency pairs, cross currency pairs and exotic currency pairs. The three types of pairs that are traded in Forex Market.
Major Currency pairs
When U.S dollar(USD) is traded against the major currencies, the pair called Major Currency Pairs. The major currencies are- Euro(EUR), Britain Pound(GBP), Japanese Yen(JPY), Australian dollar(AUD), New Zealand dollar(NZD), Canadian Dollar(CAD), Swiss Franc(CHF). For example-EUR/USD, USD/JPY, USD/CHF
Cross Currency Pairs
The cross currency pairs are all those pairs made by major currencies which are not quoted against the US dollar.So, this type of currencies is 28 in total. Such as- EUR/JPY, AUD/NZD, GBP/CHF.
Exotic Currency Pairs
These are simply all those currencies can be bought, excluding the major currencies. Because of unpredictable volatility and lack of liquidity, they are not widely traded. The Mexican peso and the Brazilian real to name just two, but these are extremely volatile and not for the novice trader. Of course, get it right and it’s a double whammy of interest rate credits and profit on the position.Whatsoever, I never advocate them for beginning traders.
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