When it comes to investing in the stock market, a knowledge of the terminology is almost essential. With a whole new lexicon, the early days are likely to see you constantly looking for definitions (maybe this is how you found our guide!). Today, we want to talk about live forex quotes because this is something that you’re likely to encounter.

Definition

As DailyFX describes so perfectly, the term encapsulates ‘the price of one currency in terms of another currency’. Since you’re selling one currency and buying another, the quotes will contain ‘currency pairs’ and this is another term you need to understand.

Example

When comparing the GBP and USD currency pair, two of the most traded currencies in the world, you might find that a single British pound costs $1.1397. With any currency pair, brokers normally quote two different prices and the spread (the difference between the two) is something we’ll discuss in the next section.  

Dissecting a Quote

With the basics now covered, let’s go into a little more detail. With any forex quote, there are two sides; a bid and an ask. Sticking with the same two currencies, it may be displayed as so;

GBP/USD - 1.1300/05

• The Bid - 1.1300
• The Ask - 1.1305

Often, people get confused by the presentation because the ask is actually shortened. However, it’s easy once you understand. What the above example really says is;

GBP/USD - 1.1300/1.1305

Since the difference between the bid and the ask is so minuscule, there’s no need to write the whole thing. Instead, we can show the bid and then how the last two digits change for the ask.

When they first get involved in the market, many people believe that the bid price is what we pay when buying a currency pair. This isn’t the case, and the terms are actually used from the forex broker’s perspective. When the word ‘bid’ is used, this is what the broker could be willing to bid if YOU were the seller. Therefore, the ask is higher.

Using the example above, you would pay the ask because this is what the broker is asking. Therefore, it would be 1.1305. If you were selling to the broker, you can choose to either accept or reject the bid.

We know, this can all get a bit confusing (you aren’t alone!). If you ever need help, just remember that the terms are used from the broker’s perspective and not your own.

The Spread - Simply put, the ‘spread’ is the difference between the bid and the ask. Since they’re charging slightly more than they would sell for, this is their commission for the trade.

Pip

Finally, this is another word that you’re likely to see frequently. No need to panic, a pip is just the smallest unit of value that you’ll find in a forex currency quote. Since we’re breaking down pounds, dollars, euros, and lots of other currencies beyond the single unit (cent, pence, etc.), we use the word ‘pip’ to help.

In our example, the difference between the bid and the ask is 0.0005. To ensure that we all have a universal language and to avoid confusion with decimal points, we call this ‘5 pips’. The spread, the commission for the broker, is five pips.

Conclusion

Simple, right? Like anything, learning about trading and forex quotes is just a matter of learning the language. Now you understand the spread, pip, ask, bid, and currency pairs, you’ve taken a huge step forward!