How to Read a Forex Quote
A forex quote holds a great deal of information that you need for your forex trading. It’s not a complex concept, but it’s one that you will need to understand.
This is a basic forex quote.
This means, of course, that one euro is equal to 1.0717 US dollars. Each euro you spend to buy dollars will give you that amount.
So the standard format for a currency pair is x/y, as above. Note the four decimal points – the last one is referred to as a pip in almost all currency pair quotes except that of the Japanese yen – that currency is quoted to two decimal points (and the pip is the last one).
In the above formula, x is referred to as the “base” currency, and y is called the “quote” (or sometimes the “counter”) currency.
You will usually see forex quotes in a more expanded form:
This forex quote encompasses the “bid” price and the “ask” price. The first price – 1.0717 – is what you can buy euros for. It is the price at which the forex trader will enter the market when selling the currency pair. The second price – 1.0725 – is what you can sell one euro for with dollars. It is the price which the trader will enter the market when buying the currency pair.
When you are buying the base currency, probably because you think it will increase in value, then you are selling the quote currency and you are also entering into what is called a “long” position. If you instead sell the base currency and buy the quote currency, you are going into a short position.
Direct and Indirect Quotes
There are two types of currency quotes in forex: Direct quotes and Indirect quotes. A direct currency quote is simply a currency pair in which the currency of the country you live and work in is the quoted currency; an indirect quote is a currency pair where the local currency is the base currency. So if you live in the U.S., and you’re looking at USD/GBP, the direct quote would be USD/GBP, while an indirect quote would be GBP/USD. The direct quote varies the domestic currency, and the base, or foreign currency, remains fixed at one unit. In the indirect quote, on the other hand, the foreign currency is variable, and the domestic currency is fixed at one unit.
Most traders, however, don’t make all their trades based on their local currency. You might start out that way because you have a better sense of trading the money you use to buy things with. But you’ll soon see opportunities in what are called “cross currency” trades, in which the dollar is not a component. If you have a good sense of international economic affairs and follow the forex economic calendar, this kind of forex trading can be quite profitable.
What is the spread?
The difference between the bid price and the ask price in a forex quote is called the spread. In the previous example: EUR/USD, the spread is 8 pips. A pip may seem an incredibly small amount, but if you’re trading a few million in the forex market, even a half-pip movement makes a pretty considerable difference.
Most brokers in the forex market do not take commissions on trades. Instead, they earn their profit with the spread. You will conclude from this that, the wider the spread, the more the broker makes, but that’s not how it works really. A broker who gave really wide spreads would quickly lose all his customers. Brokers compete on spreads, and you should compare spreads when choosing a forex broker.
Part of the strategy of spreads is based on the kind of currency pair being traded. When it’s a major currency pair, with trillions being exchanged every nano-second, brokers narrow the spreads. When it’s an exotic currency pair, in which there may not be much liquidity, brokers widen the spreads to make up for the lack of business.
From a forex trader’s point of view, when you make a trade, you have to start out by beating the spread before you see any profit. If the currency pair you are interested in trades with a wide spread, you must consider that the trade will earn a lot of pips before you can break even. You must calculate your strategy with this in mind.
Use of lots
Another aspect of currency pairs is the use of lots. To facilitate trading, brokers don’t trade make a single trade at one time, they group them into lots. The standard lot is valued at $100,000. There are also smaller lots with a size of $10,000 called mini-lots, or $1,000 called micro lots. Because most trades are intended to profit from small movements of currency pairs, only a few pips at a time, these large lots of currency are put together to take advantage of small price movements.
In the past, traders of the world were only able to deal in fiat currencies. These are currencies that are standardized and regulated by central banks. Fiat currencies have formed the basis of the Forex market. However, there has emerged another form of digital currency that central governments have no control over. This currency is what is known as cryptocurrency. For years now, individuals have been trading in Forex and crypto to realize returns. Both options employ similar trading strategies such as arbitrage, day trading, and long-term investment plans. However, the markets are distinct from each other, and each has its advantages and disadvantages. A Brief History of Forex and Crypto The Forex market has been around for decades. Towards the end of the 19th century, traders adopted the gold standard whereby a currency’s worth was determined in relation to gold. This standard prompted traders to start exchanging currencies in a bid to make a profit, and this is how Forex trade was born. As technology advanced, people stopped trading money physically and instead adopted an electronic trading system. The electronic system is what has evolved to become an international Forex exchange system that allows individuals to trade in currency from all parts of the world. Further advancements in technology led to the introduction of cryptocurrency. In 2009, an anonymous computer programmer invented the first cryptocurrency known as Bitcoin (BTC). The Bitcoin gained acceptance among the digital community, and this caused its popularity to grow. Individuals started trading in crypto and using the digital currency as a medium of exchange. The popularity of BTC led to the emergence of over 113 cryptocurrencies in the market. A Clash of the Titans Forex trading and cryptocurrency trading are in competition regardless of the distinct features of both markets. This competition brings about the argument of the Titans. Forex trading has been around for generations, even though it has evolved over the years. The currencies traded in the Forex market are fiat currencies which are regulated by the central banks. On the other hand, cryptocurrency presents something relatively new and unpredictable. No banks or governments regulate crypto. It is completely decentralized. The inflation of cryptocurrency is decreased by an algorithm when its stock increases. Anyone in any part of the world can acquire cryptocurrency, exchange it, and use it to buy goods and services. Is the competition between Forex and cryptocurrency a clash of new and old? Which is the better market to invest? Investors are faced with a difficult task of choosing between these two markets. However, one cannot base their choice primarily on what’s new and trending or old and predictable. Factors such as the trade volume, liquidity, stability, and leverage should be considered before making a choice. Forex vs. Cryptocurrency Market The Forex market is arguably the largest trading marketplace today. The Forex market has a daily trade volume of around $5.1 trillion. On the other hand, cryptocurrencies have a total trade volume $7.1 billion which is only 0.1% of the market share as compared to Forex’s 99%. Simply put, the crypto market is microscopic in comparison to the Forex market. The larger the trading market, the more the liquidity and stability that it enjoys. However, this does not mean that crypto is undesirable. The currencies, especially BTC, have piqued the interest of investors. In 2017, the value of 1BTC rose to $4,000 with a total market value of $70 million. The Forex market has the largest share, and this means that investors can enjoy more stability and liquidity. There is increased diversity and traders can pair major and minor currencies in their trades to maximize the ROI. However, the Forex market lacks price volatility. Additionally, one requires the help of a currency trading broker to maneuver the market at the start and reduce the risk of losing their investment. On the other hand, cryptocurrency has high volatility, and this makes it possible for investors to enjoy substantial profits. The transaction costs of trading in crypto are low, and individuals can easily enter and exit the market through direct access or brokers. The lack of institutional involvement makes cryptocurrencies favorable to traders. However, since traders hold digital wallets, they are at risk of getting hacked and losing their coins. Final Verdict Both Forex trading and crypto trading has desirable advantages, and they are profitable investments for traders. The choice between the traditional Forex market and the revolutionized crypto market with digital currency solely relies on an investor. There is a need to weigh the benefits against the risk before engaging in any of these markets. That’s because both profits and losses are existent in both worlds, and only the sound investors get to enjoy a high ROI.
Trading is a business and like many businesses, you need tools to help you in your business. If you are a Futures trader, you have no doubt looked into Futures trading software and wondered exactly what it is you require.The trading software you will need will depend on what type of trader you are. Swing traders may need different trading software than a scalper.Assuming you have the basics such as the best trading platform and order entry programs covered, I want to touch on a few pieces of software and services you may find useful for not only Futures trading but any market or instrument.These are not endorsements but are gleaned from the many traders I speak with on a weekly basis.Data Feed For Futures TradingIf your trading strategies call for intra-day trading volatile markets such as crude oil futures, you will want to ensure you are trading with an extremely reliable data feed. data feed for futures tradersWhile data is not futures trading software per se, without it, other important trading software would be useless.Kinetick– Many of the traders use the Ninja Trader trading charting software for futures so this is no surprise. Quotes are not sacrificed for unfiltered delivery speed so the price you are getting is straight from the exchange. When trading fast markets, the last thing you want to worry about is the quality and speed of your price quotes.Their price point is in reason compared to other data companies. Data feed is not a glamorous topic however speed, reliability and costing are variables you should keep in mind.Just as you turn on the light at home and expect a constant stream of electricity, you should expect the same from you data provider.On the topic of backtesting, ensure your data feed has enough historical data to allow a large sample of market conditions to test. Kinetick offers 180 days of tick data, 2 years of minute data and 10+ years of daily data. That may be enough to give you a solid glimpse into the viability of your trading plan and system if you are interested in trading futures for a living.Breaking News SoftwareWhat if your futures trading strategy relies on up to the minute news and insights to help define a trade setup?How about software that allows you to monitor and analyze many different securities at once?One very powerful piece of future trading software for traders is:Bloomberg Terminal– A trader I know that trades for a fund said he would not turn on the charts until Bloomberg was fired up. That is how important this trading software is to his business.bloomberg software Global coverage is their hallmark and while they produce their own content, they have 1000+ other news sources plus the ability to harness the power of social media for instant and in the moment news broadcasting.We’ve all seen how a misplaced word from a govt leader can affect the market to the tune of 400 points in a hearbeat. Fast delivery of news content for those whose futures trading strategies rely on news and errant spikes to be effective is vital.Economic releases can shake the market and having the important releases front and center and the results of the release can be an exceptional asset to certain types of traders. I personally know a trader who will only start trading when a highly volatile releases such as NFP (Non-Farm Payroll) occur.You can imagine that having up to the second information on these events is part of his trading edge.Tracking the main markets such as Dow, S&P, NASDAQ, and even gold futures can help traders have a birds eye view on the risk on/off situation for the trading day.It does come with a cost and this type of software for futures trading may be out of your reach. There are many benefits to the investment that will all depend on your goals and how much overhead you want to have.Trading Automation SoftwareAutomated Futures Trading Software – Whether you are trading oil futures or your business is e-mini futures trading, this type of software can do much of the heavy lifting for you. If you have done any robot_bannertrading at all, you know the battle you have with your trading emotions. Paper trading (demo trading) can sometimes give you an insight of the greed/fear emotions but nothing takes the place of live trading with actual money on the line.Automated trading software can do everything from locating and triggering trades to trailing and exiting your positions.There are two huge benefits to this type of software:1_ No emotional trading – It’s a mechanical strategy that has been tested out over time. When variables line up, the trade is triggered regardless of your personal bias. If you were starting at your trading charts, you may find reasons to sit out “this trade”. You may decide to lighten up the position.That brings me to the Turtle Traders and the heating oil example. Only 1 trader, Curtis Faith, followed the trade plan and reaped a windfall for his mentors. The others found reasons to not follow the plan and paid a hefty price for doing so.Objective trading at its finest is what this type of trading software can do for you.2_ Have a life outside of trading – Unlike the standard approach to futures trading, you don’t have to be glued to your computer screen out of fear of missing a trade. Since markets are basically in play 24 hrs a day, your prime setup may occur while you are on vacation or sleeping. Automated software is online around the clock ready to execute your backtested and proven trading plan.This is just some of the trading software that is available for those interested in trading futures. Software also comes with different qualities and price ranges so ensure what you are using is aiding your trading…not hindering it.Even those that make their living currency trading online can benefit from employing a strong data feed, news wire and automated trading programs.For those traders that love the “thrill” of day trading, they can still utilize the automation in regards to trade management or even locating and entering swing/position trades. Anything that helps us stick to our trade plans and protect our trading accounts is always worth consideration.
Article Summary: Diagonal patterns are simple technical patterns that offer tight zones of entry and exit. Many times, the risk-to-reward ratio of the diagonal pattern will better than the 1-to-2 ratio that we suggest in our forex courses.Diagonal patterns are one of my favorite patterns to trade because the method to trade them is fairly straight forward and you can identify clear risk and reward parameters. This piece will outline what a bullish diagonal looks like and how you set your entry and exit parameters for the potential trade.The Anatomy of a Bullish Diagonal The ideal diagonal would consist of five waves. Each wave of the three waves to the downside would be smaller than the previous alternating wave. The alternating waves of the 5 wave move are waves 1, 3, and 5.For example, wave 5 would be smaller in length than wave 3. Wave 3 would be smaller in length than wave 1. So wave 3 would be smaller in length than wave 1.When you connect waves 2 and 4 with a trend line and connect waves 1 and 3 with a trend line, then you will notice a triangular type of drawing (see grey lines). This becomes the basis of the bullish diagonal pattern.This pattern tends to fool trend traders because it continues to produce lower highs and lower lows. Trend traders would see this as a bearish trend. However, there are a couple of clues that can tip us off that the trend is likely to correct or possibly reverse.1. Measure the waves – In the idealized pattern above, see how wave 5 is shorter than wave 3 while wave 3 is shorter than wave 1. This indicates the trend lower doesn’t have the strength it used to. Each subsequent push lower in price travels less distance than the previous leg. The trend has moved too far and too fast to the downside and is likely to correct upward.2. Look for simple indicator divergence – determine if divergence is showing up in the formation of wave 5. Divergence is another clue of a tiring trend and momentum is slowing to the downside. Absent a healthy correction to the upside, this pattern is losing momentum and at risk of a sharp move up.Another key point to consider is distinguishing the difference between an ending diagonal and a triangle. Triangles tend to move sideways as they consolidate a prior move. Diagonals tend to be directional.For example, see how both grey lines in the idealized chart above are both pointed down? This is what I mean by both lines are directional. You’ll see both trend lines point in the same direction in a diagonal. A triangle will see both trend lines pointed in different directions.Learn Forex: Ending Diagonal Trade Set Up As you can see in the above example, prices in the EURUSD were towards the end of an exhaustive move to the downside. Prices kept pushing lower and creating lower highs and lower lows. Trend traders may see that type of price action and jump into the trend to the downside. However, the length of wave 5 is less than the length of wave 3, and the length of wave 3 is smaller than wave 1 tipping us off that the trend is certainly slowing. Additionally, the RSI oscillator is flashing divergence as price reaches lower lows yet the oscillator fails to confirm lower lows.Trading the DiagonalAs wave 5 is taking shape or shortly after it is completed, we can begin setting up our trade.1. Draw a trend line connecting the top of wave 2 and the top of wave 42. Enter on a break above this trend line as a break indicates a high probability the low of wave 5 is in place3. Place your stop loss just below the swing low of wave 54. Place your limit to take profit at the beginning of wave 1Many times, because the pattern is losing momentum to the downside, when prices finally turn bullish, it can be a swift correction to the upside.As you can see from the chart above, the risk-to-reward ratio on this trade would have been about 1-to-3 which is many times better than the 1-to-2 risk-to-reward ratio we discuss in our DailyFX Education courses.Remember, this is simply a pattern to follow with buy and sell rules. Not all patterns and not all trades work out to be a winning trade. Therefore, it is important to be responsible to your account and use prudent risk management techniques such as trading in small sizes risking a small portion of your account. We suggest risking less than 5% of your account on ALL open trades.Good luck with your trading!