The following extract is from a series of financial education articles and videos on supplementing your income with currency exchange …

The first time that many online trading beginners pull up forex quotes and try to interpret them can be confusing for those who are only familiar with ordinary stock exchange quotes. The only actual similarity between common stock quotes and forex quotes is the nature of the information that they provide. While a forex quote does, ultimately, tell you the price, it is not as readily apparent as it would be with ordinary stock and requires a bit of deciphering.

There are several lines of information included in forex quotes. The top line indicates some very basic, but crucial, information. In the same way that a common stock quote begins with a corporation's ticker symbol, a forex quote starts by identifying the currencies that would be involved in the trade. For example, if a forex trader pulled up a quote that began USD/JPY then he would immediately know that the quote is using US Dollars to buy Japanese Yen. If the quote read JPY/USD then the Yen is the base currency that is being used to purchase US Dollars.

The second part of forex quotes that you need to look at is the pricing component of the quote. To continue the example from above, if the quote read USD/JPY=117.57, then the trader knows that for every 1 US dollar he trades, he will receive 117.57 Japanese Yen in exchange. While that may seem really simple, there are a few more details about these quotes that the forex trader needs to take note of before making the foreign exchange trade.

Following the initial line of the quote, which contains the two currencies that form the cross and the exchange rate, is another line of information. This is probably more familiar to common stock traders. Bid prices and ask prices, which make up an integral part of forex quotes, function in trading forex much the same way. The bid price is the price at which you can sell the currency. In other words, that is the price that people are willing to pay for it. The buy price is what you will have to pay if you want to purchase the currency. There is usually a difference between these two numbers, but it is seldom substantial.

There are over 60 currencies listed on most major forex trading platforms. As you look through most of the forex quotes actually traded though, you will notice that over 85% of them include some mixture of the US Dollar, Japanese Yen, Euro, Canadian Dollar, Swiss Franc and the Australian Dollar. Known as the majors, these six currencies constitute the backbone of foreign exchange trading. Historically, they are the most heavily regulated, and as a result, the most stable currencies in the world. This stability makes them safer investments than some other currencies. The feeling of security by investors results in much higher trade volumes.

For more articles on foreign exchange trading, visit: Forex Trading Strategies

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