Market Profile

In the FX market, participants either buy or sell currencies. The objective of currency trading is exchanging one currency for another with the expectation that the price will change so that the currency that was bought will increase in value compared to the one was sold. An exchange rate is simply the ratio of one currency valued against another currency. For example, the EUR / USD exchange rate indicates how many U.S. dollars can purchase one Euro, or how many Euros you need to buy one U.S. dollar.

How To Read Currency Quotes

Currencies are always quoted in pairs, such as GBP/USD or USD/JPY. The reason they are quoted in pairs is because in every foreign exchange transaction involves simultaneously buying one currency and selling another. Here is an example of a foreign exchange rate for the Euro versus the U.S. dollar:

EUR/USD = 1.5000

The first listed currency to the left of the slash ("/") is known as the base currency (in this example, the Euro), while the second one on the right is called the counter or quote currency (in this example, the U.S. dollar). When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy one unit of the base currency. In the example above, you have to pay 1.5000 U.S. dollars to buy 1 Euro. When selling, the exchange rate tells you how many units of the quote currency you get for selling one unit of the base currency. In the example above, you will receive 1.5000 U.S. dollars when you sell 1 Euro.

The Bid And Ask Prices

All currency quotes include a two-way price, the bid and ask. The bid is always lower than the ask price. The bid is the price at which the dealer is willing to buy the base currency in exchange for the quote currency. The ask is the price at which the dealer will sell the base currency in exchange for the quote currency. The difference between the bid and the ask price is known as the spread. The spread is the effective fee that is paid to the FCM and liquidity providers for every transaction that we make.

What is a pip?

The smallest increment in currencies transactions is known as a pip. If the EUR/USD moves from 1.2250 to 1.2251, that 0.0001 movement is a pip.