Understanding
Bid & Ask
Bid is an offer made by
an investor, trader, or dealer to buy a security or the price
at which a market maker is willing to buy a security. In other
words, the bid is what someone is willing to pay for an asset.
Ask is the price a seller
is willing to accept for a security, also known as the offer
price.
Understanding the forex exchange quote system is essential
to the sucess of forex trading. All you need to remember is:
The first currency listed first is the base currency and the
value of the base currency is always 1.
Major currency pairs are EUR / USD, GBP /
USD, USD / JPY, and USD/CHF. For example, a quote of EUR /
USD 1.2100 means that one 1 Euro is equal to 1.2100 units
of U.S. Dollars. When that number increases, it means the
Euro is appreciating while the U.S. Dollar is depreciating
and vis versa.
Let's look at another example. USD / JPY
is trading at 124.00. It means 1 dollar is equal to 124 units
of Japanese Yen. An increase in the number means that U.S.
Dollar is appreciating while the Japanese Yen is depreciating
and vis versa.
In other words, if a currency quote goes
higher, that increases the value of the base currency. A lower
quote means the base currency is weakening.
Cross currency pairs are currency pairs that
do not involve the U.S. dollar. For example, EUR / JPY at
126.34 means 1 Euro is equal to 126.34 Japanese yen.
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