The Importance Of Understanding Currency Prices

At the heart of Forex trading is the schedule of individual currency prices and it is the constantly changing relationships between these prices that provide investors with profit opportunities. Forex is a mature market and has a lexicon and set of customs that have developed over many years. The novice may see a bewildering array of figures, notations and symbols, but there is certainly a method to this apparent madness. Understanding currency prices will help you review currencies and trades quickly and confidently.

Forex is a cash-only market, although there are many different varieties of cash from dozens of nations around the world. In Forex, you are not making trades to secure ownership in a company, or a promise to repay debt. You are trading the direct means of purchase and the base unit of exchange for individual countries. As stated, there are dozens and dozens of currencies traded, but the majority of trades boil down to a handful of major players.

Some of the major currencies include:

• Australian Dollar (AUD)
• British Pound (GBP)
• Canadian Dollar (CAD)
• Euro (EUR)
• Japanese Yen (JPY)
• Swiss Franc (CHF)
• US Dollar (USD)

These currencies will comprise the majority of almost every trader’s portfolio, and they are readily exchanged for one another on the Forex market.

Understanding Currency Prices: A Guide To Currency Listings

A typical listing of currency quotes will look something like this:

Currency       Price             Change         %Change       High              Low

EUR/USD 1.1901/03      -0.0091         -0.76%         1.2024          1.1891

GBP/USD 1.7439/42      -0.0004         -0.02%         1.7573          1.7410

Currencies are always traded in pairs, one currency being purchased for another. In the above listing, the Euro and the British Pound are referred to as the ‘base currencies’ and the US Dollar is referred to as the ‘quote currency.’ On this chart, the base currency is priced in the quote currency, i.e. one Euro will cost 1.1901 US Dollars.

Prices are given from the point of view of the broker. The first number shows the price (in US Dollars) the broker will buy at, and the second number is an abbreviation that shows the sale price. In the above example, a broker will buy Euros for 1.1901 US Dollars, and will sell Euros for 1.1903 Euros.

The small difference in price between buying and selling is the ‘spread,’ which is how brokers make money without charging commissions or fees. This is industry-standard practice, and each currency transaction has the spread built in. One of the first rules that novice investors will learn is that the spread must be covered before a profit can be realized on any given trade.

Understanding currency prices and the additional notations can help investors spot trends and radical shifts in the market. Change from the previous quote is given in both absolute and percentage format. Highs and lows are noted, and the reader can quickly gauge whether the market is rising or falling. There is a multitude of more sophisticated analytic tools and software available, but these tables are the foundation of all trading activity in the Forex marketplace.