Timothy Stevens

Forex Options Trading - How to Read FOREX Price Quotes (Part 3 of 3)

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Most currency price quotes have the US dollar (USD) as its base currency (direct quote). Therefore it is easy to calculate the cost as it is always 1 US dollar equals whatever price the quote currency is showing. However, there are exceptions to this rule. There are four currency pairs that involves the US dollar but where the US dollar is not the base currency but the quote currency (indirect quote).

The Australian dollar (AUD), the British sterling Pound (GBP), the Euro dollar (EUR), and the New Zealand dollar (NZD) are the 4 currency pairs where the US dollar is not the base currency but the quote currency.

For example, a price quote on the GBP/USD of 1.8800 would mean that one British Pound is equal to 1.8800 US dollars. Likewise, if the price the GBP/USD currency pair increases it would mean that the British Pound (GBP) has appreciated against the US dollar or that the US dollar has weakened against the British Pound (GBP).

Conversely, if the price the GBP/USD currency pair goes down it would mean that the British Pound (GBP) has weakened against the US dollar or that the US dollar has strengthened against the British Pound (GBP).

Lastly, there are 3 kinds of quotes. Firstly, a direct quote where the US dollar (USD) is reflected as the base currency. Second, an indirect quote where the US dollar (USD) is reflected as a quote currency rather than a base currency (as above example). Third as a cross quote where the US dollar (USD) is not quoted in the currency pair, e.g. GBP/EUR.

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