Forex currency pair prices: Learn how to read and trade correctly

Why Understanding Forex Price Reading Is Essential Before Trading

For those just starting to trade Forex, it’s important to know that reading currency pair prices isn’t about candlestick charts. It’s a fundamental skill that must be mastered before investing real money. Without understanding the basic structure, such as the main currency, the quote currency, the buy-sell prices, and the hidden aspects of forex prices behind the numbers, you won’t be able to trade effectively.

Since Forex involves currency exchange, you need to know which currency you’re buying and which you’re selling. Otherwise, your decisions will be aimless.

First, Let’s Get to Know Base Currency and Quote Currency

Every Forex currency pair consists of two currencies set as a pair, such as EUR/USD, GBP/USD, USD/JPY, etc.

Left currency = Base Currency (Main currency)

• This is the currency you buy or sell first
• Example: In EUR/USD, EUR is the main currency

Right currency = Quote Currency (Reference currency)

• This is the currency used as a price measure
• Example: In EUR/USD, USD is the reference currency

The way they are written may vary (EUR/USD, EUR-USD, EUR USD, EURUSD) but the meaning remains the same.

When you “buy” EUR/USD = Buy Euro + Sell Dollar (Expect Euro to appreciate)

When you “sell” EUR/USD = Sell Euro + Buy Dollar (Expect Euro to depreciate)

Bid Price and Ask Price: Why Do the Same Price Have Two Values?

Every Forex price has two levels, and this is where the hidden forex price spread comes from.

Bid Price (Buy Price) = The price the broker buys from you

• If you want to sell the main currency, the broker will buy at this price
• Usually, this is lower

Ask Price (Sell Price) = The price the broker sells to you

• If you want to buy the main currency, the broker will sell at this price
• Usually, this is higher

For example, EUR/USD at 1.0689/1.0687:

• Bid Price = 1.0689 (Price the broker buys Euro from you)
• Ask Price = 1.0687 (Price the broker sells Euro to you)

Why are they different? Because the Bid is lower than the Ask. This difference is the broker’s profit and is an embedded cost every time you trade.

Spread: The Hidden Cost in Every Forex Transaction

Spread = Difference between Bid Price and Ask Price

Using EUR/USD as an example:

• Ask Price (1.0689) - Bid Price (1.0687) = 0.0002
• Which equals 2 pips (A pip is the smallest unit of measurement for forex price changes)

Meaning: Every time you open a position, you need the price to move 2 pips before you can break even or profit. Therefore, the size of the forex spread is very important because it directly affects your ability to make profits.

Choosing a broker with a low spread is crucial to reduce trading costs.

Summary: A Solid Foundation Leads to Trading Success

All these concepts—Base Currency, Quote Currency, Bid Price, Ask Price, and Spread—are fundamental ideas that are not complicated. However, skipping this step means your trading will lack a solid foundation.

If you don’t understand, go back and read again until you’re confident, because knowledge of reading Forex prices is the key to making correct trading decisions moving forward. A house built on sand will soon collapse, and similarly, without a strong foundation, failure awaits in trading.