For those that are new to the two Forex trading one of the most confusing things can be trying to understand how to read forex quotes. In Forex trading a Currency Pair will be listed with the base currency on the left and the cross currency on the right. For example of the Dollar/Yen can be seen as follows USD/JPY. Forex pairs or currency crosses as they are also known are quoted with a bid and ask. In the case of USD/JPY the bid would be 102.518 in the ask price would be 102.534. To purchase or go long the currency pair the forex trader would buy and the trade would be executed at the ask price.
In order to sell the currency pair the trader would do so at the bid price. In the earlier days of Forex Trading many brokers would offer what are known as “fixed spreads” . Basically this meant that the spread between the bid and the ask would not change. Brokers were offering much wider spreads then. It was not uncommon for a broker to have a spread 3 PIPs wide on a major pair. Now most Forex Brokers are offering variable spreads which will fluctuate with the market. The spreads tend to me much narrower than with the fixed spread brokers.
A currency pair is quoted or the spread is quoted in terms of PIPS. A PIP or Price Interest Point is the smallest unit a price can move in any currency quote. When comparing the spread of Forex brokers they’re usually compared in terms of pips. Having an understanding about how a currency is quoted will help those that are new to forex trading.
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Trading Forex and Derivatives carries a high level of risk, including the risk of losing substantially more than your initial investment. Also, you do not own or have any rights to the underlying assets. The effect of leverage is that both gains and losses are magnified. You should only trade if you can afford to carry these risks. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary.