How Do I Read a Base Currency Counter Currency
forex is the buying of one currency for another. In other words it is the simultaneous buying of one currency and selling of another in the form of a quote that is comprised of Base Currency Counter Currency. In order to trade FX, a trader must learn how to read a quote - Base Currency Counter Currency. A quote is marked in terms of decimals example, EURUSD: 1.2345 - that is Base Currency Counter Currency
A quote represents the exchange rate between two currencies; Base Currency Counter Currency referred to as forex pairs. Currencies in the market are traded in the form of Base Currency Counter Currency pairs, for example EURUSD, GBPUSD, USDCHF and USDJPY. The first one is referred to as the Base currency while the second is known as the Quote currency.
Example of EURUSD - Base Currency Counter Currency
EURUSD is one of the major currency pair in Forex, hence we shall use it for our example:
EURUSD
- Base Currency - EUR
This is the first currency in a pair (EUR). The Base is equivalent to 1 unit of the first currency.
- Quote Currency - USD or Variable Currency
This is the second currency in a pair (USD). The Quote shows the value of the base currency in relation to the second currency.
If EURUSD= 1.4500
It means the ratio of EUR : USD = 1 : 1.4500
Hence it means 1 Euro = 1.4500 USA dollars
Base Currency Counter Currency - Example of exchange rates on MT4 Software
Market Watch Window on MT4 - Base Currency Counter Currency
The above are examples of EURUSD & GBPUSD pairs.
The Base Currency Counter Currency Quotes are shown as above, there is the Bid, the price at which you buy and Ask, the price at which you sell. The difference between these two quotes is the spread. Spread is the small markup that the broker puts before selling to you. This spread is how brokers make profit.
Where to Get FX Quotes from MT4
To get the Base Currency Counter Currency quotes display window on the MT4 software, follow these instructions, Click "View" Menu as illustrated below, then click "Market Watch" window.
Base Currency Counter Currency From Market Watch
The Market Watch window will display all the quotes of the various currency pairs as shown below.
List of Currency Quotes Displayed on MT4 - Base Currency Counter Currency
5 decimal Fractions Quote - Fraction of a Pip Quoting of Base Currency Counter Currency
From 2010, Brokers started to implement the fifth decimal quotes, the 5th point is known as the fractional Pip. Before this all quotes were 4 decimal places and that's when the last point was referred to as a pip. Hence, when trading always use the fourth point and not the fifth decimal as the pip size.
If you trade with a online broker using 5 points (all online brokers now use 5 decimal point format), then 1 fractional pip which is the 5th decimal place, will be equal to $1 per one standard contract. However, this is just the Fraction of a pip & not the original Pip. To Make up one Point you'll have to use 10 points, (it is like rounding off to the fourth decimal point).
Example: for 4 Digits Quotes Format
This is how the quotes were displayed before 2010 - 4 decimal points format
If EURUSD moves from 1.4500 to 1.4501 then this move is equal to:
1.4501-1.4500 = 0.0001 (1 pip)
The Value of = 0.0001 USD
1 contract = $100,000
The Value of 1 pip for 1 contract = 100,000* 0.0001= $10
1 pip = $10, for 4 Decimal Points Format
4 Points Decimal Format on MT4 - Base Currency Counter Currency
Example: for 5 decimal Points Quote - Base Currency Counter Currency
If EURUSD moves from 1.45000 to 1.45001 then this move is equal to:
1.45001-1.45000 = 0.00001 (1/10 pipette)
The Value of = 0.00001 USD
1 contract = $100,000
The Value of 1/10 pipette for 1 contract = 100,000* 0.00001= $1
1/10 pipette = $1, for 5 Decimal Points Format
5 Decimal Points Format on MT4 - Base Currency Counter Currency
Please Note from the above screen-shot how the fifth decimal point is shown in a digit much smaller than the other digits, this is to signify that it's a fraction of a pip.
Analyzing Base Currency Counter Currency Quotes Moves with Forex Charts
These streaming quotes in FX are used to plot charts - these charts are then used to analyze the chart price movements. When a Forex Chart is plotted, traders can then use these charts to analyze the price movements, for example the price may show a downward move or an upward move. These moves might be referred to as trends and the market trend may be upwards or downward.
Therefore as a beginner day trader all you need to know is that the Base Currency Counter Currency moves will be analyzed from these charts.
