The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency. The difference between the base and quote currency is that the first currency in this currency pair is the base currency, and the second currency is called the quote currency. The price of the base currency is always calculated in units of the quote currency. If you think that the bid is the price you will pay to buy a currency pair, you are highly mistaken. Instead, you will pay the ask 3. On the other hand, you would accept the bid 3. Spread is the term that is used to refer to the difference between the bid and the ask.
The commission that the broker takes is called a spread.
Currency Quotes
Pip is one of the most common terms in forex contexts. When it comes to the forex currency quote, the smallest unit of value is called a pip. For example-. In this example, we have 5 pips, and it is the difference between base and quote currency. As you know, the bid price is the first number, which is 1. So 5 pip is the spread in this example. But when you buy currency, then both items exchanged are money. When you are looking at currency quotes, it is important to understand the format of the quote.
Currency is always quoted in pairs. The 1 st quote is for the base currency , and is a unit of that currency. The 2 nd currency is the quote currency aka counter currency , which is the amount of the currency equal to a unit of the base currency. The 2 search engines do not always provide the same quote, so just use it as a quick approximation. In forex, there is a standard in assigning the base currency to a currency pair, so when currencies are quoted, the currency with higher priority is the base pair.
The priority of the major currencies is as follows:. These currencies are considered the major currencies — sometimes referred to simply as the majors — while all other currencies are considered minor currencies — sometimes simply called minors.
Forex quotes of a major currency and a minor currency will usually list the major currency as the base currency. However, in certain situations, other types of quotes may be more desirable, and the media may report different quotes.
My Favorite Trading Quotes
The main advantage of these different types of quotes is that the base currency or quote currency remains the same for different currency pairs, regardless of the currency priority. Currency futures in the US are also reported as American quotes. There are 4 major types of currency quotes:. When you buy something in a store in the United States, the smallest unit of price is 1 cent. This is because the coin with the least value is the penny, and so it would not be possible to sell or buy something for less than that, if only a single item is purchased, as is usually the case.
However, because the quote currency is valued as a unit of the base currency, which makes it easier to compare different currency values and changes in currency values, and because a large amount of currency is usually traded, a smaller unit of measurement is convenient in expressing currency prices.
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This smaller unit is called a pip , which is equal to. For US traders, a pip value in another currency must be converted to US dollars.
Sources of Currency Quotes
A well known exception to the value of a pip is the Japanese yen. Thus, most currency quotes are expressed by 4 significant digits, and the Japanese yen is expressed to 2 significant digits. The pip is the smallest value quoted by brokers and dealers. However, larger transactions may be reported to 5 or 6 decimal places. Prior to , exchange rates were expressed to 4 decimal places, equal to the number of pips.
Currency pair - Wikipedia
For instance, euro conversion rules require at least 6 significant figures. A term that traders sometimes use is called the handle , which represents a specific decimal place, so that if the handle changes, then that would represent a significant movement in the value of the currency. So if the euro was at 1.
If the euro changed to 1. Most investors buy currencies from market makers, or dealers, in that currency, who are commonly called brokers. A dealer makes money by buying at one price and selling a little higher. When the dealer sells, the trader is buying, and when the dealer buys, then the trader is selling. The trader pays the broker's ask price aka offer price , and the trader sells to the broker for the broker's bid price , and the difference between the prices is called the spread , which in currencies, is usually at least 4 pips.
The bid price for the trader is always lower than the ask price, because that's how forex dealers make money. If you want to buy currency, you have to pay the higher ask price, but if you want to sell currency, you have to sell it at the lower bid price.
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So if you were to buy currency, then immediately sell it back to the same dealer, the dealer would make money, and you would lose money. There are a few companies, Forexite among them, that offer public rather than individual quotation. It means all clients independently of their positions, deals way and frequency, trading volume and methods are free to use for trading the very quotes the company receives. Such quotation excludes any moves or whatsoever tampering with quotes because they are available to anyone and can be compared with the quotes of other independent sources.
Because of public quotation there appears a constant flow of quotes called real dealing quotes in contrary to the informative ones supplied by DBC, CQG and other systems. Forexite offers real-time dealing quotes via the QuoteRoom program with the quotes history published on the web-site.