A Simple Forex Quote

When trading a pair of currencies the trade would be donated using the codes for each currency so that a trade involving both the US dollar and the Pound Sterling might be shown as USD/GBP. Alternatively, the trade could also be shown as GBP/USD but the two are not the same.

The first currency shown in the pairing is known as the 'base' currency and the second as the 'counter' or 'quote' currency. In any quote the base currency is always denoted as a single currency unit and so a quote for USD/GBP would be a quote in Pounds Sterling for 1 US dollar. Similarly a quote for GBP/USD would be a quote in US dollars for 1 Pound Sterling.

In its simplest form a quote might look like this:

USD/GBP = 0.5436

In this case a trader would be prepared to pay 54.36 British Pence (0.5436 Pounds Sterling) to buy 1 US dollar.

It would however be unusual to see a quote with just a single figure and the quote would normally appear as:

USD/GBP = 0.5436/0.5441

In this case the first figure denoted the 'bid' or 'ask' figure, in other words, the price the dealer is prepared to pay to buy the currency. As before, the dealer will pay 54.36 British Pence to buy 1 US dollar. The second figure is the 'offer' figure and denotes the price at which the trader is prepared to sell the currency to you. So, if you wish to buy 1 US dollar then the dealer will sell it to you for 54.41 British Pence.

Confused? Don't worry it becomes second nature with practice.

Unlike many forms of security trading there are very few 'hidden' costs associated with Forex trading strategies and the difference in the two quoted prices (referred to as the bid/offer spread, or simply the spread) is where the dealer makes his money. In this case he will buy US dollars at 0.5436 Pounds Sterling and sell them on at 0.5441 Pounds Sterling taking the 0.0005 Pounds Sterling as his profit.

Although many dealers will provide a full quote as shown above, some will abbreviate this quote to just the last two figures so that the quote will appear as 36/41. There is no set format in providing quotes and each dealer will decide how he wishes to provide quotes.

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