forex

The foreign exchange market is rapidly changing. Each second literally billions upon billions of dollars, yen, pounds, euros, etc are changing hands around the world. The changing prices are quoted as the current rates, or the amount of currency that you can buy with another currency.

For example:
GBP/USD 1.6193 means that one GBP (Great British Pound) is worth 1.6193 USD (US dollars). If you want, you can also read it as GBP in USD is 1.6193. Simply it would take 1.6193 dollars to buy a pound and 1 pound can buy 1.6193 dollars.

Unlike other markets, you’ll find that the foreign exchange market is quoted all the way down to four decimal places, or 5 total digits in the price of the currency. This is because forex often requires to use of leverage to boost profitability. A forex trader could invest as little as $1000 at 100:1 leverage and each fourth decimal change, or pip, would be the equivalent to $10.

Forex quotes vary from broker to broker but are generally very close between each brokerage. Often, the difference in the quote between multiple brokers is the result of the spread, or the difference between bid and ask prices. The spread is the amount of money that the broker makes on each trade.

For popular currency pairs such as the EUR/USD or USD/JPY the spread is just a few pips. On more exotic currency pairs that are less traded, the spread is usually larger. Examples of “exotic” pairs would be the USD/MXN (US dollar/ Mexican Peso) or USD/INR (US Dollar / Indian Rupee.)