If you remember the following two points, it will be easy to understand the foreign exchange quotation:
1. Currency pairs
Foreign exchange usually takes the form of "Currency Pair". In pairs of currencies, the top currency is called the Base Currency, and the bottom currency is called the Counter Currency.
2. Classification of Currency Pairs
Currency pairs are generally divided into two types: direct currency and cross currency. Direct offer: Simply speaking, a pair of currencies containing US dollars (e.g. Euro dollar, US dollar yen); relatively, a "crossover" refers to a pair of currencies that do not contain US dollars (e.g. Euro yen, Euro pound).
3. Quotation
Foreign exchange quotations indicate how much "relative currency" each unit of "base currency" can be converted. For example, EUR/USD (Euro/US Dollar) = 1.3100 means that 1 Euro can be converted into 1.3100 US Dollars. The rise of currency quotation indicates the appreciation of base currency, while the decline of currency quotation indicates the depreciation of base currency. When the U.S. dollar is not the base currency, the rising quotation indicates the depreciation of the U.S. dollar, which can now buy fewer other currencies than in the past.
4. Selling Price, Buying Price, and Point Difference
Like other markets, foreign exchange quotations consist of bid and ask. The difference between buying price and selling price is point difference, and traders profit by point difference between buying and selling.
The Spread: The difference between the purchase price and the sale price is the cost of the transaction. In the foreign exchange market, spreads are relatively low compared with other markets, making this transaction more cost-effective for transactions with smaller price fluctuations.
Bid: The price at which a market maker prepares to buy the underlying currency. In terms of the quoter, it means that the quoting bank or foreign exchange broker is willing to buy the highest price of the currency being quoted at the time of quotation.
Offer: The price at which a market maker prepares to sell the underlying currency. From the standpoint of the quoter, the quoter or the economist is willing to sell the lowest price of the quoted currency at that time. From the standpoint of the inquirer, the selling price is the lowest price at which the inquirer can buy the quoted currency.
5. What is "point"?
Base point (Pips or Points): The smallest part of a change in exchange rate, often referred to as a point. Among the five digits mentioned above, from the right to the left, the first digit is called "X (basic) points", the second digit is called "X + basic points", and the third digit is called "X 100 (basic) points", and so on.
6. Large Number, Decimal Number
The Big Figure: The basic part of the exchange rate is usually not reported by the trader, but only when the transaction needs to be confirmed or in a highly volatile market. For example, in GBP/USD=1.6500, 5 is a large number.
The Small Figure: In GBP/USD=1.6500, 00 is the decimal.
7. Number of hands:
In the foreign exchange market, when trading each pair of currencies, a certain amount of margin (deposit) is required to support it; each currency has different margin (deposit) requirements, and the trading unit expresses the volume by hand, 1 standard hand = the amount of margin required by each currency.
8. Contract Number
Refers to the number of transactions in a foreign exchange contract. The contractual unit of a first-hand foreign exchange contract is 100,000 base currencies. For example, the contract unit of one hand of Euro/US dollar is Euro 100,000, and the contract unit of one hand of US dollar/Japanese yen is US$100,000.
