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Forex Education | Forex Guide

 

 

 

CURRENCY PAIRS, SPREADS AND QUOTES

Which currency pairs can you trade?

 

To do any Forex trading, you need at least two currencies, so that you can buy one by selling the other. There are a number of different pairs of currencies that are commonly traded. The major currencies that are the US Dollar, the Euro, the Japanese Yen, the British Pound and the Swiss France (and sometimes the Australian Dollar), give rise when paired among themselves to the “major currency pairs”. Any other pairs of currencies are referred to as minor currency pairs.

 

What’s a spread?

 

When you buy or sell these currencies, the bid price and the ask price (the prices at which the market maker will buy and sell, respectively) are not the same. The difference between the two prices is called the spread.

 

Is a bigger spread better?

 

For you as a trader, yes – on condition that it’s a positive spread for you. You want the price you buy at to be as low as possible and the price you sell at to be as high as possible. On the other hand, you want the market maker’s (or broker’s) spread to be as small as possible. That way you only need to make modest gains in trading to be able to sell back your currency at a profit.

 

What are quotes?

 

A quote in Forex trading is what defines the exchange rate when you want to either buy or sell currency. Quotes will naturally change (rapidly) as market conditions change, but at a given moment a quote represents a firm offer from a market maker to trade with you.

 

There are three type of quotes:

 

  • direct quotes – the equivalent of 1 US dollar in another currency like the British Pound

  • indirect quotes – the equivalent of a unit of a currency (the British Pound, for instance), in US dollars

  • cross rates – other quotes not involving the US Dollar.