Understanding currency quotes
If you are going to invest, you have to understand what you are looking at. Investing in the forex market is very complicated, as it is a huge market, and there are a lot of currencies. Thus, understanding what a currency quote is, what it means, and what that means to you is key to investing well. How online brokerages display currency prices and what they mean for trade and order execution is described below. Every borker is going to be a little bit different, but this is the standard.
Different online forex brokers use different formats to display prices on their trading platforms, but no matter which broker you look at, you will see prices for the pairs, bid, offer, spreads, etc. Let's take a closer look at each of these areas.
When looking at online forex broker's trading platform, you will see two prices for each pair.
1. The price on the left is the bid.Or the price on the top is the bid. It depends on how the broker displays.
2. The price on the right is the offer or the ask. Or the price on the bottom is the offer or ask. Again, it just depends on how it is displayed by the online broker.
So what is the big? What does this mean to you the investor? Here's a look:
A bid is the price at which you can sell the base currency. In other words, if you have Euros and this is your base currency, the left hand number is your selling price. Of course there is a little more to it than that. Each bid has two components. The big figure and the dealing price.
The big figure is the first three digits on the overall currency rate and it is usually shows in a smaller font size or in shadow.Again this is dependant on the broker. The deal price is the last two digits of the overall currency price and is brightly displayed in a larger font size.
So what is the offer?
The offer is the price at which you can buy the base currency. In other words, if you want Euro, the offer is how much it will cost you to buy Euro.The bid price is always lower than the offer price.Just like if you were traveling to Europe and exchanged currency, or in other words, bought Euro, you would pay more to buy then you would get back when you sell.
Now let's take a look at spreads:
The spread is the difference between the bid price and the offer price.
Most online forex brokers use spread-based trading platforms for individual traders.
The spread is the compensation the broker gets for executing your trade.
Spreads change based on the pairs, and the brokers.
The more liquid the currency pair, the wider the spread.
This is the case for some of the less-traded crosses.