Reading a foreign exchange quote may seem a bit confusing
at first. However, it's really quite simple if you
remember two things: 1) The first currency listed
first is the base currency and 2) the value of the
base currency is always 1.
The U.S. dollar is the centerpiece of the FOREX market
and is normally considered the 'base' currency for
quotes. In the "Majors", this includes USD/JPY,
USD/CHF and USD/CAD. For these currencies and many
others, quotes are expressed as a unit of $1 USD per
the second currency quoted in the pair. For example,
a quote of USD/JPY 120.01 means that one U.S. dollar
is equal to 120.01 Japanese yen.
When the U.S. dollar is the base unit and a currency
quote goes up, it means the dollar has appreciated
in value and the other currency has weakened. If the
USD/JPY quote we previously mentioned increases to
121.01, the dollar is stronger because it will now
buy more yen than before.
The three exceptions to this rule are the British
pound (GBP), the Australian dollar
(AUD) and the Euro (s).
In these cases, you might see a quote such as GBP/USD
1.4366, meaning that one British pound equals 1.4366
U.S. dollars.
In these three currency pairs, where the U.S. dollar
is not the base rate, a rising quote means a weakening
dollar, as it now takes more U.S. dollars to equal
one pound, euro or Australian dollar.
In other words, if a currency quote goes higher, that
increases the value of the base currency. A lower
quote means the base currency is weakening.
Currency pairs that do not involve the U.S. dollar
are called cross currencies, but the premise is the
same. For example, a quote of EUR/JPY 127.95 signifies
that one Euro is equal to 127.95 Japanese yen.
When trading FOREX you will often see a two-sided
quote, consisting of a 'bid' and 'offer'. The 'bid'
is the price at which you can sell the base currency
(at the same time buying the counter currency). The
'ask' is the price at which you can buy the base currency
(at the same time selling the counter currency).
Past performance is not necessarily indicative of
future results and individual returns may vary amongst
participants. Investment return and principal value
will fluctuate so that an investor’s shares,
when redeemed, may be worth more or less than their
original cost. All performance figures assume the
reinvestment of realized gains and capital gains.
There is considerable exposure to risk in any foreign
exchange transaction, including, but not limited to,
the potential for changing political and/or economic
conditions that may substantially affect the price
or liquidity of a currency. This is not a solicitation
to invest. Please consult your investment advisor
and read all risk warnings before committing funds.
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of Premierefx™, LLC and any related products, are
analytical tools only and are not intended to replace
individual research or licensed investment advice. Unique
experiences and past performances do not guarantee future
results! Testimonials are non-representative of all clients;
certain accounts may have worse performance than that
indicated. Trading stocks, options and spot currencies
involves substantial risk and there is always the potential
for loss. Your trading results may vary. No representation
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profits or not result in losses from trading. Neither
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Trading foreign exchange on margin
carries a high level of risk, and may not be suitable for
all investors. Before deciding to trade foreign exchange
you should carefully consider your investment objectives,
level of experience, and risk appetite. The possibility
exists that you could sustain a loss of some or all of
your investment and therefore you should not invest money
that you cannot afford to lose. You should be aware of
all the risks associated with foreign exchange trading,
and seek advice from an independent financial advisor if
you have any doubts.
