How To Read a Forex Currency Quote
Foreign exchange is the buying of one currency for another. In other words it is the simultaneous buying of one currency and selling of another. In order to trade Forex, a trader must learn how to read a Forex quote. A quote is marked in terms of decimals example, EURUSD: 1.2345
A quote represents the exchange rate between two currencies; referred to as currency pairs. Currencies in the FX market are traded in pairs, for example EURUSD, GBPUSD, USDCHF and USDJPY. The first one is known as the Base currency while the second is known as the Quote currency.
Example of EURUSD
EURUSD is one of the major currency pair in FX, therefore we shall use it for our example:
- Base Currency - EUR
This is the first currency in a pair (EUR). The Base is equal to 1 unit of the first currency.
- Quote Currency - USD
This is the second currency in a pair (USD). The Quote shows the value of the base currency in relation to the second currency.
If EURUSD= 1.4500
It means the ratio of EUR : USD = 1 : 1.4500
Therefore it means 1 Euro = 1.4500 US dollars
Example of exchange rates on MetaTrader 4 Platform
Market Watch Window on MetaTrader 4 Platform
The above are examples of EURUSD and GBPUSD pairs.
The Quotes are shown as above, there is the Bid, the price at which you buy and Ask, the price at which you sell. The difference between these two quotes is the spread. Spread is the small markup that the broker puts before selling to you. This spread is how brokers make profit.
Where to Get Forex Quotes From MetaTrader 4
To get the quotes display window on the MetaTrader 4 platform, follow these instructions, Click "View" Menu as shown below, then click "Market Watch" window.
The Market Watch window will display all the FX quotes of the various currency pairs as shown below.
List of Currency Quotes Displayed on MetaTrader 4 Platform
One pip is the basic unit used to measure price movement; it is equal to the last decimal point in a Quote (4 Decimal Point Format), it is the smallest change in price movement. The last decimal point should be the 4th point. However, the fifth point that is now implemented by brokers is known as fraction of a pip or pipette.
5 decimal Fractions Quote - Fraction of a Pip
From 2010, Forex Brokers started to implement the fifth decimal quotes, the fifth point is known as the fractional Pip. Before this all quotes were 4 decimal places and that is when the last point was referred to as a pip. Therefore, when trading always use the fourth point and not the fifth decimal as the pip value.
If you trade with a broker using 5 points (all brokers now use 5 decimal point format), then 1 fractional pip which is the 5th decimal place, will be equal to 1 dollar per 1 standard contract. However, this is just the Fraction of a pip and not the original Pip. To Make up one Point you will have to use 10 points, (it is like rounding off to the fourth decimal point).
Example: For 4 decimal Points Quotes Format
This is how the quotes were displayed before 2010 - 4 decimal points format
If EURUSD moves from 1.4500 to 1.4501 then this move is equal to:
1.4501-1.4500 = 0.0001 (1 pip)
Value of = 0.0001 USD
1 contract = $100,000
Value of 1 pip for 1 contract = 100,000* 0.0001= $10
1 pip = $10, for 4 Decimal Points Format
4 Points Decimal Format on MetaTrader 4 Platform
Example: For 5 decimal Points Quote
If EURUSD moves from 1.45000 to 1.45001 then this move is equal to:
1.45001-1.45000 = 0.00001 (1/10 pipette)
Value of = 0.00001 USD
1 contract = $100,000
Value of 1/10 pipette for 1 contract = 100,000* 0.00001= $1
1/10 pipette = $1, for 5 Decimal Points Format
5 Decimal Points Format on MetaTrader 4 Platform
Please Note from the above screenshot how the fifth decimal point is shown in a digit much smaller than the other digits, this is to signify that it is a fraction of a pip.
Interpreting Currency Quotes Moves With Forex Charts
These streaming quotes in FX are used to plot charts - these charts are then used to analyze the chart price movements. When a Forex Chart is plotted, traders can then use these charts to analyze the price movements, for example the price may show a downward move or an upward move. These moves may be referred to as trends and the trend may be upward or downward.
Therefore as a beginner day trader all you need to know is that the currency quotes moves will be analyzed from these charts.