|You purchase 10,000 euros at the EUR/USD exchange rate of 1.1800||+10,000||-11,800*|
|Two weeks later, you exchange your 10,000 euros back into U.S. dollar at the exchange rate of 1.2500||-10,000||+12,500**|
|You earn a profit of $700||0||+700|
** EUR 10,000 x 1.25 = US $12,500
How to Read a Forex Quote
The first listed currency to the left of the slash (“/”) is known as the base currency (in this example, the British pound), while the second one on the right is called the counter or quote currency (in this example, the U.S. dollar).
When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy ONE unit of the base currency. In the example above, you have to pay 1.51258 U.S. dollars to buy 1 British pound.
- You would buy the pair if you believe the base currency will appreciate (gain value) relative to the quote currency.
- You would sell the pair if you think the base currency will depreciate (lose value) relative to the quote currency.
First, you should determine whether you want to buy or sell.
“I’m long AND short.”
The Bid, Ask and Spread
- If you want to sell EUR, you click “Sell” and you will sell euros at 1.34568.
- If you want to buy EUR, you click “Buy” and you will buy euros at 1.34588.