Forex Quotes

Reading a foreign exchange quote may seem a bit confusing at first. However, it's really quite simple if you remember two things: 1) The first currency listed first is the base currency and 2) the value of the base currency is always 1.

The first thing you should know for correctly reading currency quotes is that each world currency is given a three letter code which is used in forex quotes. The most common currencies for traders are: European euros (EUR), US dollars (USD), United Kingdom pounds (GBP), Australian dollars (AUD), Japanese yen (JPY), Swiss francs (CHF) and Canadian dollars (CAD).

The first is known as the "base" currency and the second as the "quote" currency. Here is an example of a quote for the US dollar and European euro:
USD/EUR = 0.8723

The base currency (the US dollar) is always taken to be "1" unit in the quote and the quote shows how much it will cost to buy one unit of the base currency. Here therefore it will cost 0.8723 European euros to buy 1 US dollar.

This quote could also have been given as:
EUR/USD = 1.1464

Here it will cost 1.1464 US dollars to buy 1 European euro.

When reading Forex quotes it's common to watch the price of the quote currency as it rises and falls. An increase in the quote currency indicates that the base currency is becoming stronger and that one unit of the base currency will now buy more of the quote currency. Similarly, if the quote currency falls, then the base currency is becoming weaker.

Currency prices in the Forex markets are determined by a great number of factors influencing the value of the currency. Among the most important factors to consider are the economic and political conditions in the home country of the currencies you are willing to trade. Inflation, political stability, and interest rates are all highly considered for determining the price of any currency.