With trading on the foreign currency exchange market, the currencies are always going to be listed as a pair. Each currency has its own three-letter symbol, most of which are obvious, such as USD for United States dollars. A currency pair for US dollars and British pounds looks like USD/GBP. Some Forex trading platforms list the currency pairs without the slash so a pair may look like USDGBP.
The first currency in the pair is known as the base and the second is the quote or counter currency. The currency pairs are always listed in terms of the base currency so the base will have the value of 1. The quote is given in relation to its value compared to the base. The value will always be given as two numbers. The first is the bidding (selling) price and the second is the asking (buying) price. For example, if you ask for the quote of EUR/USD, you may be told 1.2957/61. In this case, you could sell Euros for $1.2957 or buy Euros for $1.2961.
The reason that there is always a difference between the buying and selling price of currencies (known as the spread) is because this is how the Forex brokers make money. They will not take a commission from your earnings but they will always profit from your exchanges because of this spread.
One of the most important concepts with Forex trading is “pips.” A pip is a math term for the last decimal point in a quote. Your profits and losses are measured in changes of pips. For example, if your currency pair goes up by one pip, your investment of $1000 may earn $10. Keep in mind that each currency has its own pip value. With USD, the pip is the fourth decimal point (in our example earlier, the pip is the “7” of the 1.2957). With Japanese yen, the pip is the second decimal point. For example, if the bid quote of EUR/JPY is 99.61, the pip is 1.
Here are some examples of Forex trading quotes and what they mean.
AUD/CAD 1.0410/1.0447
The base currency is Australian dollars, the quote is Canadian dollars.
Bid price is 1.0410, when selling Australian dollars, AU$1 = CA$1.0410
Ask price is 1.0447; when buying Canadian dollars, AU$1 = CA$1.0447
The spread is 0.0037
The pip value is 0.0001
CAD/CHF 0.9188/0.9216
The base currency is Canadian dollars, the quote is Swiss francs.
Bid price is 0.9188; when selling Canadian dollars, CA$1 = 0.99188 Swiss francs
Ask price is 0.9216; when buying Swiss francs, CA$1=0.9216 Swiss francs
The spread is 0.0028
The pip is 0.0001
GBP/AUD 1.5181/1.5228
The base currency is British pounds, the quote is Australian dollars
Bid price is 1.5181; when selling British pounds, 1 pound = AU$1.5181
Ask price is 1.5228; when buying British pounds, 1 pound = AU$1.5228
The spread is 0.0047
The pip is 0.0001
CHF/JPY 81.80/82.21
The base currency is Swiss francs, the quote is Japanese yen
Bid price is 81.80; when selling Swiss francs, 1 Swiss franc = 81.80 Japanese yen
Ask price is 82.21; when buying Swiss francs, 1 Swiss franc= 8.21 Japanese yen
The spread is 0.41
The pip is 0.01
USD/CAD 1.0210/1.0222
The base currency is US dollars, the quote is Canadian dollars
Bid price is 1.0210; when selling US dollars, US$1 = CA$1.0210
Ask price is 1.0222; when buying US dollars, US$1 = CA$1.0222
The spread is 0.0012
The pip is 0.0001
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