how to read price quotation
Currencies Are Always Traded In Pairs
In the FX market, traders wish to generate profits by speculating on the value of one currency against another. Currencies are always traded in pairs. Price of an FX pair is called a Quotation.
Forex is quoted in pairs. The first currency in the pair is the base currency where it is always equal to 1. The second currency in the pair is the counter currency which shows how many units of the counter currency are needed to buy one unit of the base currency.
For example: in EUR/USD currency pair, the Euro is the base currency and the US Dollar is the counter currency. When EUR/USD is quoted at 1.3000, it means that one euro is exchanged for 1.30 US dollar. If the quote moves from EURUSD 1.3000 to 1.3500, then the Euro is getting stronger relative to the dollar as one Euro is now able to buy more dollars.
Currencies are not always quoted in terms of US Dollars. Some currencies are quoted with USD acting as the base currency. The Japanese Yen are quoted in terms of how many Yen it takes to buy $1.
In this case, USD is the base currency and the Yen is the counter currency. In this type of quotation, when the number goes up it means the US Dollar (USD) is increasing in value, and when it is falling it means that the US Dollar is decreasing in value.
A full FX quotation consists of 2 prices called the Bid and the Ask prices. The difference between these two prices is referred to as the ‘Spread’. Generally speaking, you would want the spread to be as narrow or tight as possible.
What are Bid and Ask prices?
Bid and Ask prices or simply bid ask prices are the 2-way price quotation that indicates the best price at which an instrument can be traded.
The wider the bid ask spread the more expensive it is for you to trade, whereas the tighter the spread the cheaper it is to enter the trade. Frequently traded currencies usually have a small bid ask spread whilst infrequently traded currencies have a wider spread.
What is BID price?
BID price is the price at which a buyer is willing to buy or the price that you can SELL instantly
What is ASK price?
ASK price is the price at which a seller is willing to sell or the price that you can BUY instantly
Here you can see the bid-ask spread of EURUSD pair when you open a deal ticket within MT4.
this example, the spread is 3 points (pips).
LONG (BUY) POSITION:
The quotation reads: 1.1331 / 1.1334
If you buy you will enter the market at 1.1334
SHORT (SELL) POSITION:
The quotation reads: 1.1331 / 1.1334
If you sell you will enter the market at 1.1331
In both circumstances your entry price on your P/L (profit loss) will be negative as the spread has been attached to your order. The market will have to move in your favour by the distance of the spread in order for your P/L to become zero.
