Base 3: Quotes
Quotation of Pairs
The first currency is the base currency, the second is the reference currency.
When we talk about the value of a pair, it is always the value of the first currency compared to the second.
In the example below, the British pound (GBP) is worth 1.13241 US dollars (USD).
If the value of the GBP increases, the price of this pair will increase.
If the value of the GBP decreases, the price of this pair will decrease.
If the value of the USD increases, the price of this pair will decrease.
If the value of the USD declines, the price of this pair will increase.
ASK Purchase Price and BID Sales Price
When you BUY a currency, you pay the ASK price.
ASK means Request; so the bank asks you for such price.
The ASK price is always the highest.
When you sell a coin, you get the BID price.
IDB stands for Offer; so the bank offers you such price.
The BID price is always the lowest.
In the example below:
The bank offers 1.13341 US dollars for each pound.
The bank charges 1.13359 US dollars for each pound sterling.
The difference between the ASK price and the IDB price is called Spread.
The Spread is expressed in Points and its unit is the 5th decimal place.
Therefore, a point is written 0.00001
For example 0.00012 reads "12 points"; 0.00312 reads "312 points"
The greater the gap, the more expensive Spread you will pay.
Major pairs are those with the lowest Spread.
Exotic pairs are those with the highest Spread.
Currency values were previously represented by 4 decimals.
The arrival of Linux servers allowed the addition of a 5th decimal
and multiply the speed of execution in world markets.
The addition of the 5th decimal therefore allows a more precise quotation.
The quotation in 4 decimals has therefore become obsolete.
This means that all JPY pairs will be quoted to 3 decimal places
and all other pairs to 5 decimals:
Pips vs Points
The values represented by 5 decimals are expressed in POINTS.
The old values represented by 4 decimals were expressed in PIPS. So 10 points equals 1 pip.
The term pips is still prevalent today and is confusing.
Beginners often confuse the two terms.
The scammers take advantage of this confusion to make believe in big profits in pips while they are actually points.
Their earnings are therefore ten times lower than they try to believe.
Here are Spread values expressed in Points and Pips: