How currency pairs are quoted
In the previous lesson, you learned what forex and CFD trading are. This lesson explains how to read a currency pair, understand its quoted price, and distinguish between the prices used to buy and sell. These basics will help you interpret currency quotes on MT5 before exploring pips, lots and position size.
Base and quote currencies
Currencies are quoted in pairs because an exchange rate compares the value of one currency with another. Each currency has a three-letter code: EUR means euro, USD means US dollar, and JPY means Japanese yen. In EURUSD, also written EUR/USD, EUR is the base currency and USD is the quote currency. The order determines how you read the price.
The base currency is always the first currency in the pair. The quote currency is the second. A quoted rate tells you how many units of the quote currency equal one unit of the base currency. For example, a hypothetical EURUSD rate of 1.1000 means that one euro is worth 1.10 US dollars. It does not mean that one dollar is worth 1.10 euros.
What a changing price means
When a pair’s price rises, the base currency has strengthened relative to the quote currency. If EURUSD moves from a hypothetical 1.1000 to 1.1200, one euro now corresponds to more US dollars. If the price falls to 1.0800, one euro corresponds to fewer dollars. These statements describe the relationship between the two currencies, not their value against every other currency.
Buying a currency pair gives exposure to a rise in the base currency relative to the quote currency. Selling the pair gives exposure to a fall in that relationship. With a forex CFD, you are trading a contract linked to the price movement rather than exchanging cash for a holiday or taking delivery of currency. Whether a position makes or loses money also depends on costs and its closing price.
Bid, ask and spread
A tradable currency quote usually shows two prices rather than one. The bid is the price at which you can sell the pair, while the ask is the price at which you can buy it. The ask is normally higher than the bid. On MT5, the Market Watch window can display these prices; check the column labels rather than relying on their screen position.
The difference between the ask and bid is called the spread. It is one component of trading costs and can change as market conditions change. A buy position opens at the ask and closes at the bid; a sell position opens at the bid and closes at the ask. This difference helps explain why a newly opened position may initially show a loss even without an underlying market move.
Worked example: reading EURUSD
Suppose a hypothetical EURUSD quote shows a bid of 1.1000 and an ask of 1.1002. This means the selling price is 1.1000 US dollars per euro, and the buying price is 1.1002 US dollars per euro. The spread is 1.1002 minus 1.1000, which equals 0.0002. These numbers are for learning only and do not represent current market prices or any broker’s trading conditions.
For a hypothetical position representing 10,000 euros, opening a buy at 1.1002 gives a quote-currency value of 11,002 US dollars: 10,000 × 1.1002. Immediately closing at an unchanged bid of 1.1000 gives a value of 11,000 dollars. The difference is a 2-dollar loss before any other charges. These values describe the position’s exposure, not the margin needed to open it. CFDs are leveraged and carry a high risk of loss.
Reading different pairs
The same reading method applies to other currency pairs, but prices do not all have the same number of decimal places. A hypothetical USDJPY quote of 150.25 means one US dollar is worth 150.25 Japanese yen. Notice that USD is now the base currency. Always identify the first and second currencies before interpreting the number, especially when switching between instruments.
MT5 may display additional decimal places, such as EURUSD at 1.10025. These provide finer price detail without changing the base-and-quote relationship. A larger numerical exchange rate does not, by itself, mean that a pair is more expensive to trade or more risky. In the next lesson, you will connect price changes to pips, lots and position size, which help explain how movements translate into monetary gains or losses.
- The first currency is the base; the second is the quote.
- The rate shows quote-currency units for one base-currency unit.
- You buy at the ask and sell at the bid.
- The spread is ask minus bid and contributes to trading costs.