How Do I Read a Forex Base Currency and Variable Currency
forex is the buying of one currency for another. In other words it is the simultaneous buying of one currency and selling of another in the form of a quote that is comprised of Base Currency and Variable Currency. In order to trade Forex, a trader must learn how to read a Forex quote - Base Currency and Variable Currency. A quote is marked in terms of decimals example, EURUSD: 1.2345 - that is Base Currency and Variable Currency
A quote represents the exchange rate between two currencies; Base Currency and Variable Currency referred to as currency pairs. Currencies in the forex market are traded in the form of Base Currency and Variable Currency pairs, for example EURUSD, GBPUSD, USDCHF and USDJPY. The first one is referred to as the Base currency while the second is known as the Quote currency.
Example of EURUSD - Base Currency and Variable Currency
EURUSD is one of the major currency pair in Forex, therefore we shall use it for our example:
EURUSD
- Base Currency - EUR
This is the first currency in a pair (EUR). The Base is equivalent to 1 unit of the first currency.
- Quote Currency - USD or Variable Currency
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
Base Currency and Variable Currency - Example of exchange rates on MT4 Platform Software
Market Watch Window in MetaTrader 4 - Base Currency and Variable Currency
The above are examples of EURUSD and GBPUSD pairs.
The Base Currency and Variable Currency Quotes are shown as above, there is the Bid, the price at which you buy & 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 Base Currency and Variable Currency quotes display window on the MT4 platform, follow these instructions, Click 'View' Menu as shown below, then click 'Market Watch' window.
Base Currency and Variable Currency From Market Watch
The Market Watch window will list all the quotes of the various forex pairs as shown below.
Listing of Currency Quotes Displayed in MetaTrader 4 - Base Currency and Variable Currency
5 decimal Fractions Quote - Fraction of a Pip Quoting of Base Currency and Variable Currency
From 2010, Brokers started to implement the 5th decimal quotes, the fifth point is referred to as the fractional Pip. Before this all the quotes were 4 decimal points & that's when the last point was referred to as a pip. Therefore, when trading always use the 4th point & not the 5th decimal as the pip value.
If you trade with a online broker using 5 points (all brokers now use 5 decimal point format), then 1 fractional pip which is the fifth decimal point, will be equal to $1 dollar per 1 standard contract. However, this is just the Fraction of a pip & not the original Pip. To Make up one Point you'll have to use 10 points, (it is like rounding off to the fourth decimal point).
Example: for 4 Digits Forex Trading 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 in MetaTrader 4 - Base Currency and Variable Currency
Example: for 5 decimal Points Quote - Base Currency and Variable Currency
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 in MetaTrader 4 - Base Currency and Variable Currency
Please Note from the above screen-shot how the fifth decimal point is shown in a digit much smaller than the other digits, this is to signify that it's a fraction of a pip.
Analyzing Base Currency and Variable Currency Quotes Moves with Forex Charts
These live 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 might be referred to as trends and the market trend may be upwards or downward.
Therefore as a beginner day trader all you need to know is that the Base Currency and Variable Currency moves will be analyzed from these charts.
