Forex Trading Concepts
Understanding Forex Quotes
In forex trading, currencies are always quoted in pairs – that’s because you’re trading one country’s currency for another.
- The first currency listed is the base currency
- The value of the base currency is always 1
The Bid and the Ask
Just like other markets, forex quotes consist of two sides, the bid and the ask:
When USD is the base currency and the quote goes up, that means USD has strengthened in value and the other currency has weakened.
The three exceptions to this rule are major currency pairs that are not based on the US dollar they include; the British pound (GBP), the Australian dollar (AUD) and the Euro (EUR).
For these pairs, where USD is not the base currency, a rising quote means the US dollar is weakening and buys less of the other currency than before.
In other words, if a currency quote goes higher, the base currency is getting stronger. A lower quote means the base currency is weakening.
Currency pairs that don't involve USD at all are called cross currencies, but the premise is the same.