How Do I Interpret a Base Currency Exchange Rate Quotes
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 Exchange Rate. In order to trade Forex, a trader must learn how to read a Forex quote - Base Currency Exchange Rate. A quote is marked in terms of decimals example, EURUSD: 1.2345 - that is Base Currency Exchange Rate
A quote represents the exchange rate between two currencies; Base Currency Exchange Rate referred to as currency pairs. Currencies in the market are traded in the form of Base Currency Exchange Rate 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 Exchange Rate
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 Exchange Rate - Example of exchange rates on MT4 Software
Market Watch Window in MetaTrader 4 - Base Currency Exchange Rate
The above are examples of EURUSD & GBPUSD pairs.
The Base Currency Exchange Rate 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 online broker puts before selling to you. This spread is how brokers make profit.
Where to Get Forex Quotes from MetaTrader 4
To get the Base Currency Exchange Rate quotes display window on the MetaTrader 4 software, follow these instructions, Click 'View' Menu as illustrated below, then click 'Market Watch' window.
Base Currency Exchange Rate From Market Watch
The Market Watch panel will display all the Forex quotes of the various currency pairs as shown below.
Listing of Currency Quotes Displayed in MetaTrader 4 - Base Currency Exchange Rate
5 decimal Fractions Quote - Fraction of a Pip Quoting of Base Currency Exchange Rate
From 2010, Brokers started to implement the 5th decimal quotes, the fifth point is referred to as the fractional Pip. Before this all the quotes were 4 decimal places and that is when the last point was referred to as a pip. Hence, when trading always use the fourth point & not the fifth decimal as the pip size.
If you trade with a online broker using 5 points (all brokers now use 5 decimal point format), then 1 fractional pip which is the fifth decimal point, will be equal to $1 per 1 standard contract. However, this is just the Fraction of a pip and 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 Forex 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 in MetaTrader 4 - Base Currency Exchange Rate
Example: for 5 decimal Points Quote - Base Currency Exchange Rate
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 in MetaTrader 4 - Base Currency Exchange Rate
Please Note from the above screenshot how the fifth decimal point is shown in a digit much smaller than the other digits, this is to signify that it is a fraction of a pip.
Analyzing Base Currency Exchange Rate Quotes Moves with Charts
These realtime quotes in Forex are used to plot charts - these charts are then used to analyze the chart price movements. When a 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 may be referred to as trends & the trend might be upwards or downward.
Therefore as a beginner day trader all you need to know is that the Base Currency Exchange Rate moves will be analyzed from these charts.
