As you begin your learning of forex trading basics, one of the most fundamental things you
should start with is, how to read foreign exchange quotes? As a rule, two rates are quoted by
the market makers. Forex rate is the amount at which one currency is valued against another
currency. For instance, 1 USD = 96.67 Yen signifies the exchange rate between the US
Dollar and Japanese Yen.
There are primarily two types of quote in the foreign exchange market:
Direct Quote – Amount of home currency units that a trader needs to buy one foreign
currency unit is referred to as the direct quote. For instance, US$0.8562 = C$1 would be a
direct quote in the US. It is alos important to note that the home currency always form the
base base currency in a direct quote. If we take the traders in the US as an example, USD/
SGD (US Dollar/Singapore Dollar) pair for them would suggest the number of units of
USD that is required to buy one unit of SGD. So, USD is the base currency here and SGD is
accepted as the counter currency.
Indirect Quote – The units of foreign currencies needed to buy one home currency unit
is known as the indirect quote. For instance, the indirect quote in US would be US$1 =
C$1.7534 for a Canadian Dollar. In this case, the base currency is the foreign currency, and
the home curency is the counter currency. Like, if we consider the case of a Singapore Dollar
in the US, SGD/USD will be an indirect quote. So, this is completely opposite of the direct
quote and would suggest the number of Singapore Dollar units that are required to buy one
Besides knowing about the direct and indirect quotes and what is the base currency and
the quote currency, another important thing that a forex trader must know is, how he can
read a forex quote and how he can buy a currency and sell another one at the same time. An
example to elaborate this would be that of a USD/CAD pair. Let us say the bid price for this
pair is, 1.1744 and its ask price is 1.1748. if the trader buys this trade, it would mean that he
is buying the USD and selling away the Canadian Dollar.
Once you have understood these basics of forex trading, it would be easy for you to climb the
ladder of success without faltering much on the way.