The technological revolution in the media, communications, and computer networks has made the world a global village, affecting our lives in different ways.

Nowadays, you can buy or sell any financial product through internet. All you have to do is to contact any brokerage firm around the world to execute your orders based on current market prices, without having actually to be in the exchange location. You trade “over the counter”.

Trading over the counter is a widely used trading method in the Financial Markets all around the world because the process of buying and selling financial products takes place between the investor and the broker directly.

Forex Quotes

It is essential that you understand Forex Quotes if you want to trade in the forex market.

Currency Pairs
Placing a trade in the foreign market means that you exchange a currency for another at a certain price, the exchange rate. Consequently, the currencies are always quoted in pairs.

For example:

EUR/USD = 1.3297

The first currency listed (in our example EUR) is called the base currency and its value is always 1.
The second currency listed (USD in our example) is the quote currency.

The exchange rate indicates what 1 unit of the base currency is worth in the quote currency. This applies for buying and selling currencies. In other words, it shows how much you have to pay in the quote currency in order to buy 1 unit of the base currency. In our example above, you have to pay 1.3297 USD to buy 1 EUR.

When you sell currencies, the quote designates how many quote currency units you will receive for 1 unit of the base currency. In our example you receive 1.3297 USD when selling 1 EUR.

When the rate rises, it means that the value of the base currency (EUR in our example) strengthens and the quote currency (USD) weakens.

Bid/Ask Prices
Forex quotes always show two prices:

- The Bid = the price at which you can sell the base currency
- The Ask = the price at which you can buy the base currency

The bid price is always lower than the ask price. The difference between these two prices is called the spread.

Example in figures:

This is a quote from our trading platform:



If you sell EUR you will receive 1.3361 USD for 1 EUR.
On the contrary it will cost you 1.3362 USD to buy 1 EUR.

The spread here is 0.0001 pip (1.3362 – 1.3361).
One pip is the smallest increment of currencies. Since most of the exchange rates have four decimals, one pip corresponds to 0.0001 units. The only exception is the Japanese Yen pairs which only have two decimals. Consequently, one pip corresponds to 0.01.


Long/Short positions

If you buy a currency pair expecting the price to rise to make profit, you are taking a long position, or you are going long.

If you sell a currency pair expecting the price to go down to make profit, you are taking a short position or you are going short.

Pip
A pip is the smallest price movement that the exchange rate can make.

Lot
Foreign currencies are traded in lots. A standard lot size is 100’000 units. You can also trade mini lots which correspond to 10’000 units.

As the smallest increment of currencies is one pip, you will need to trade large amounts in order to make relevant profit.

Example in figures:

You want to buy EUR/USD at the exchange rate of 1.3361.
The value of one pip would be:



0.0001/1.3361 = EUR 0.0000748

This result is not really significant. However, if you buy one standard lot (100’000) then the value of one pip would be:

0.0000748 x 100’000 = EUR 7.48 per pip

Namely, if you trade a standard lot of the quote given in our example, you will make a profit – or loss – of EUR 7.48 per pip move.