How to Read and
Compute a Forex Quote
Any forex trader should invest effort and time in learning to read and understand a forex quote, because the
forex quote is a commonly used figure in forex currency trades. Failure to do so can cause a trader to make a
purchasing error in foreign currency, which then results in a loss of investment earnings.
The Two Components of a Forex Quote
The forex quote consists of two currency components, the basic currency and the counter currency, because it
is necessary to have a pair of currencies before a forex trade can happen. For example, let assume a forex
quote of 1 Euro = 2 USD. In this particular case, the Euro is the basic currency and the US dollar is the
counter currency. As each Euro is worth two US dollars, it follows that it will be more profitable to trade
Euros for US dollars.
Factors Affecting Foreign Exchange Currency Rates
- Interest Rates - Interest rates have a direct effect on forex trades. For example, if the interest rate
in the United States is higher than in Europe, the exchange of US dollars for Euros will be adversely
affected because it will be more profitable for a trader to earn higher interest off US dollars.
- World Events - World events such as war, or the threat of, will cause forex investors to shun
investment in that particular country's currency.
- Government intervention - Governments can influence exchange rates by increasing or reducing the supply
of money.
Tips: Using Forex Quotes for Profit
- Use real-time information - Always rely on the real-time forex quotes when making a forex trade. This
is because minute variations in the forex quote, even within just a few hours, can cause a large loss in
profit if a trader is dealing in large amounts.
- Timing of trade - While there are no optimum foreign exchange rates, there are good and bad times to
make a forex deal. Should a forex trader be interested in trading in a particular currency pair, careful
research and analysis is required before deciding if it is a good time to trade.
- Always use an exchange calculator to compute forex quotes - A forex quote can exist in two parts,
a buy quote and a sell quote. The buy quote is the price (per unit of currency) of which a base currency
can be bought, while the sell quote is the selling price. By putting up inaccurate forex quotes, which is
obviously dishonest, some forex trading companies hope to earn bigger profits by stimulating exchange of a
particular currency. In order to avoid these inaccuracies, always use exchange calculators to compute forex
quotes. Owners of online accounts are likely to have such a calculator built into their trading
websites.
- Type of currency - Unless the currency you are trading in is one of the six major currencies (US
dollar, Japanese yen, Euro, British pound, Australian dollar, and Swiss franc), it is difficult to judge
how the forex quote fluctuates based on market factors. While the rate of exchange and related trading
information for some currencies, say the Canadian dollar, are easily found online, there are other more
obscure currencies of which forex quotes are not easily available. In such cases, detailed research and
analysis is required before a trade can be made.
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