Most Forex traders have all had their fair share of confusing trouble when they first started trading in the Forex market. The most difficult task was learning how to read Forex quotes correctly. This can actually be a simple task, if it is explained properly.

An example Forex quote would look something like this: EUR/USD = 1.2526

If you haven’t done the research and learned the basics about the Forex trading market, then this example quote might as well be another language to you. The quote above is actually the exchange rate for the conversion of the British Euro to the United States dollar.

The whole concept of currency trade is based on the basic knowledge that you are purchasing one currency to sell another. In every trade, there will always be two currencies, called the currency pair. The first number is the base currency that you are buying. The second currency is the quoted currency that you are selling.

The whole purpose of the exchange rate is to provide a calculation of how much of one currency is needed to buy a certain amount of another currency. So, using the example above, you would need to sell 1.2526 United States dollars in order to buy one British Euro.

The next portion of this quote formula is the Bid/Ask spread. This is the amount that your broker will charge you for the specific trade. So, using the previous quote example we can add the spread to make it look like this: EUR/USD = 1.2526/1.2528 with the last number added as the spread for your broker.

The first number is the bid for the currency. The second number, the one just added, will be what you price you will sell the currency for, and your broker receives the resulting profit from the difference in the bid price and the asking price. Essentially, your broker receives the profit of 2 pips. Any profit that goes over the Ask spread of the broker becomes a profit for you. Those that are new to the Forex trade market often get confused and think that they are only trading to hand over all their profits from a trade to their broker. In reality, there’s a difference between what profit they get and what profit you get.

Now that we have described the topic of Forex quotes, you should be able to understand what you are doing a little better. Knowledge is the key to success.