Quotation is one of the most important terms on Forex which it is impossible to do when it comes to trading currency, precious metals and securities. We encounter it everywhere on the Forex, observing rate charts or changes in prices on the exchange. Understanding the essence of the concept of “quotation” is necessary for successful trading in the foreign exchange market.
Quotation is an expression of the value of one currency in monetary units of another currency
We do not trade Forex with any particular currency, but with a currency pair (when one currency is valued using another). It must be remembered that a quotation is the main indicator of the value of an asset in the auction.
Since the US dollar (USD) is the most popular monetary unit in the world, it is most often used as a trading tool and the main measure on Forex. This influences the types of quotes.
Types of quotes:
when the unit value of a foreign currency is expressed in a number of units of the national currency. As an example: USD / CAD, USD / JPY, where USD is invariably the base currency and the second currency is quoted.
For example, if you see USD / CAD = 1.2345, this means that for 1 US dollar they give 1.2345 Canadian dollars.
when the value of a unit of national currency, expressed in a number of units of foreign currency. Only 4 currencies in currency pairs are affected: EUR / USD, GBP / USD, AUD / USD, NZD / USD. In the currency pair with the US dollar (USD) they are the base currency.
That is, if EUR / USD = 1.2345, then for 1 euro you need to pay 1.2345 US dollars.
are currency pairs without the US dollar included. For example: EUR / CAD or CHF / JPY. In cross rates, the primary currency will always be the one indicated first, and the quoted one will always be the second one.
Speaking about quotes, its important to mention the “point” - another key concept in Forex trading.
What is a point
Point (pip, point) - the minimum variation in the change in the price of a currency on the Forex market.
For most currency pairs, the fourth decimal place is the point. An exception is any currency pair with the Japanese yen (JPY), where there are only two decimal places when quoting.
A change in the value of an asset by 1 in the last digit is the smallest fluctuation of a quote. In the example with the US dollar, it looks like this:
0.1 - 10 dollars
0.01 - 1 dollar
To simplify the calculation of big changes in Forex trading, additional terms have been introduced for items: