How to read Forex quotes? by Dr. Ned Gandevani
Foreign exchange quotes are easy to understand, as long as you know what the “base” currency is. Consider 117.40 USD/JPY which is a pair quote between US dollar and the Japanese yen. This says that for every “one” US dollar, you could have 117.40 Japanese yen. In this quote, the US dollar is the base rate which appears on top. Therefore, for every currency where the base rate is the US dollar and appears on top, you would have a foreign currency equivalent to one US dollar. For another example, let’s look at the currency pair of USD/CHF (US dollar and Swiss franc). If the quote reads 1.2987, it entails that for every dollar you have; you can convert it to 1.2987 Swiss francs. Again, the rate which appears at the top is the base rate.
As a Forex trader, you may wish to focus on US dominated currencies which have higher trading volume and liquidity. As an example, if the US dollar appreciates in value, currency pairs such as USD/CHF, USD/JPY, and USD/CAD all decrease against the greenback. However, if you think that the dollar will devalue, then you should buy EUR/USD, AUD/USD, GBP/USD, and NZD/USD for profit. In these pairs, when USD devalues, the currency pair moves higher. In other words, if you convert a US dollar, you would get less of currencies in the Euro, Australian dollar or the British Pound (also known as Sterling or Cable).
To put it differently if a currency quote appreciates; it increases the value of the base currency. Conversely, a lower quote means the base currency is weakening.
There are other currency pairs that do no involve US dollar. They are called cross currencies. For example EUR/JPY 139.95, indicates that you can buy 139.95 Japanese Yen with one Euro. Currency pairs with less trading volume and less demand for exchange are also called exotic currencies. For instance, currencies for Brazil, Mexico, Korea and Russia are part of exotic currencies with US dollar as the base currency. I.e. USD/Real or USD/KRW.
Forex Market Jargons
Traders in Forex markets have their jargons and phrases. To avoid feeling like an outsider, you should know these jargons; they help you look like a seasoned currency trader:
Aussie – nickname for the Australian dollar
Cable – sterling, pound – they all denote the Great British Pound (GBP)
Figure – refers to any round number like 1.3000
Greenback, buck – refers to the US dollar
Loonie, the little dollar – nicknames for the Canadian dollar|
Kiwi – refers to the New Zealand dollar
Swissie – denotes the Swiss franc
Yard – refers to a billion units, as in “I bought two yards of cable.”
