Forex market is the largest market in the world and that your broker or institution that you are trading with is collecting quotes from a centralized feed or individual quotes comprising of interbank rates.

Symbols

Currencies are traded in pairs and are each assigned a symbol. For the Japanese Yen it is JPY, for the Pounds Sterling it is GBP, for Euro it is EUR and for the Swiss Frank it is CHF. So, EUR/USD would be Euro-Dollar pair. GBP/USD would be pounds Sterling-Dollar pair and USD/CHF would be Dollar-Swiss Franc pair and so on. And the first currency quoted is called the base currency.

Spread and Pip

When you see Forex quotes you will actually see two numbers. The first number is called the bid and the second number is called the offer (sometimes called the ASK). If we use the EUR/USD as an example you might see 1.5778/1.5780 the first number 1.5778 is the bid price and is the price traders are prepared to buy Euros against the USD Dollar. The second number 1.5780 is the offer price and is the price traders are prepared to sell the Euro against the US Dollar. That means that 1 Euro = 1.5578 US Dollars.

These quotes are sometimes abbreviated to the last two digits of the currency such as 78/80. Each broker has its own convention and some will quote the full number and others will show only the last two. You will also notice that there is a difference between the bid and the offer price and that is called the spread. For the four major currencies the spread is normally 2 - 5 give or take a pip.

The most common increment of currencies is the PIP. If the EUR/USD moves from 1.5778 to 1.5779 that is one Pip. A pip is the last decimal place of a quotation. The Pip or POINT as it is sometimes referred to depending on context is how we will measure our profit or loss.

Example JPY rate of 104.92 (notice the JPY only goes to two decimal places, most of the other currencies have four decimal places) In the case of the JPY 1 pip would be .01 therefore. So if USDJPY move one pip, so it will become 104.93/104.91.

Currency Value

As each currency has its own value it is necessary to calculate the value of a pip for that particular currency. We also want a constant so we will assume that we want to convert everything to US Dollars. In currencies where the US Dollar is quoted first the calculation would be as follows.

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