Now let’s take a look at how foreign currencies are quoted and priced. Currencies are designated by three-letter symbols. The standard symbols for some of the most commonly traded currencies are shown below.
EUR Euro
USD United States dollar
CAD Canadian dollar
GBP British pound
JPY Japanese yen
AUD Australian dollar
CHF Swiss franc
Currency pairs are often quoted as bid-ask spreads. The first part of the quote is the amount of the quote currency you will receive in exchange for one unit of the base currency (the bid price). The second part of the quote is the amount of the quote currency you must spend for one unit of the base currency (the ask or offer price). For example, a EUR/USD spread of 1.2170/1.2178 means that you can sell one Euro for $1.2170 and buy one Euro for $1.2178. This spread could also be quoted as 1.2170/78.
At first glance, the bid and ask prices may seem backwards to you. That is because they are listed from the dealer’s point of view, not from your point of view. The first part of the spread, or the bid, is what the dealer is willing to pay to buy the base currency. So this is the price you will get if you SELL the base currency. In the same way, the second part of the spread, or the ask, is what the dealer is willing to sell the base currency at, so this is the price you will get if you BUY the base currency.
Let’s look at another example.
If the USD/CHF spread is listed as 1.2440/1.2443, you can sell one US dollar for 1.2440 Swiss francs and buy one US dollar for 1.2443 Swiss francs.
Remember that the forex market has no central marketplace. The forex dealer determines the execution price, so you are relying on the dealer’s integrity for a fair price.
EUR Euro
USD United States dollar
CAD Canadian dollar
GBP British pound
JPY Japanese yen
AUD Australian dollar
CHF Swiss franc
Currency pairs are often quoted as bid-ask spreads. The first part of the quote is the amount of the quote currency you will receive in exchange for one unit of the base currency (the bid price). The second part of the quote is the amount of the quote currency you must spend for one unit of the base currency (the ask or offer price). For example, a EUR/USD spread of 1.2170/1.2178 means that you can sell one Euro for $1.2170 and buy one Euro for $1.2178. This spread could also be quoted as 1.2170/78.
At first glance, the bid and ask prices may seem backwards to you. That is because they are listed from the dealer’s point of view, not from your point of view. The first part of the spread, or the bid, is what the dealer is willing to pay to buy the base currency. So this is the price you will get if you SELL the base currency. In the same way, the second part of the spread, or the ask, is what the dealer is willing to sell the base currency at, so this is the price you will get if you BUY the base currency.
Let’s look at another example.
If the USD/CHF spread is listed as 1.2440/1.2443, you can sell one US dollar for 1.2440 Swiss francs and buy one US dollar for 1.2443 Swiss francs.
Remember that the forex market has no central marketplace. The forex dealer determines the execution price, so you are relying on the dealer’s integrity for a fair price.
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