When it comes to knowing how markets work and manoeuvring your way around the Forex market in particular, it is vital that you are able to understand how quotations work and how to interpret them correctly.
Learning to read the quotes in the first instance however, is the best place to start. In basic terms, when a price for a currency is quoted, it is done in relation to another which means that the value of one will often be mirrored through the other currency’s value. An example of such could look like this: USD/JPY = 109.50. This is often referred to as a currency pair with the currency on the left of the slash being named the base currency, and the currency to the right being called the quote or counter currency. It may sound quite complex, but in actual fact is quite straight forward once you realise what all the jargon and abbreviations mean. It doesn’t just stop at that however, and when it comes to quotes, there are sub divisions to be taken into account too.
Currency prices can generally be quoted either directly or indirectly with direct quotes being currency pairs whereby the domestic currency is listed as the base currency. Indirect quotes however, are when the domestic currency takes on the role of quoted or counter currency.
When it comes to trading however, most currencies tend to be traded against the US dollar and therefore the dollar is usually listed as the base currency. Despite this however, there are still some countries that don’t list the USD as the base currency. For instance, New Zealand and Australia have historic ties with the United Kingdom and because of this are usually listed as the base currency against the USD. It is well known however, that the USD is a very powerful currency in the Forex market and in ninety per cent of cases will be listed as the base currency. Despite this though, the Euro, whilst still being fairly new to the market, is more often than not still listed as the base currency against the USD.
When it comes to the quotes themselves however, currency quotes generally have four digits to the right hand side of the decimal point with only the Japanese Yen as the exception. It is listed with only two digits to the right of the decimal point and stands out against all other currencies because of this. When it comes to the markets and the importance of understanding and interpreting quotes however, it is absolutely vital that you know what you are looking for. The pricing and quoting of currencies in the foreign exchange market is an extremely important concept and should be understood fully in order to be successful.