Education

Forex is based on various quotations. You often saw many figures, but did not really understand what they meant.

Well, Quotation is the expression of one currency’s value in monetary units of another currency. That’s why they say about the currency pairs. Because one currency is evaluated with the help of the other. For example, we have a nice pink piglet – this is the base currency, our commodity. And money is another currency. At what price one is ready to buy our piglet?

So quotations can be direct and indirect, as well as cross-rates.

Direct quotation is the expression of one currency value in US dollars. That is we will pay for our piglet in American currency.

For example,

US dollar Swiss franc (USD/CHF)

US dollar Japanese Yen (USD/JPY)

US dollar Canadian dollar (USD/CAD)

The first currency is base and the second currency is a quote.

We can see that in all quotations US dollar is in first place.

An indirect quotation is an exception to the rules. This exception concerns only currencies: euro, British pound sterling, and Australian and New Zealand dollar.

We can see that they are not quotes, but base currency in pairs with the dollar.

Cross-rates remained to be talked about in order to cover the complete picture. These are mathematically established relations of one currency to the other through the US dollar.

That is, there is no US dollar in these currency pairs. The principle remains the same. In pair, one currency is the base, namely our piglet, and the other is a quote, namely the amount of money we are ready to spend in order to buy our commodity.

You will often hear that the pound sterling has dropped against the US dollar by 5 points. We understand what the dollar, and cent are, what’s the point?

Point is a change in the asset value by 1 in the last character.

For example, Eurodollar was worth one point one three dollars and now it is worth one point one three zero one US dollars.

(EURUSD – 1,1300 => 1,1301).

This is called the euro has raised against the dollar by one point.

Pip is the synonym of the term point. The meaning is the same.

In all currency pairs, the point is the fourth decimal digit. Yen is the only exception. Its quotation has only two decimal digits. So, the change in the Yen value in the second decimal digit will be a point.

To make it easy to calculate the significant changes, such terms as a pattern that covers 100 points and a big pattern that covers 1000 points.

Let’s see how to calculate the point value.

In direct quotation the point value is calculated according to the following formula:

A lot is to be multiplied by the point and divided by the exchange rate.

In an indirect quotation, the point value is constant A lot to be multiplied by point. When the lot is 0,1, the point is always 10 dollars. When the lot is 0,01 the point value is one dollar.

Lot is the amount of an asset in the transaction, multiple of the minimum lot, operated by the Broker at the client's direction. In fact, this is the amount of currency he is ready to open the transaction with.

The value of lots is calculated differently in different currencies, it's up to the broker to calculate exactly how much it will cost for you.

Let me just provide an example. Let’s take a dollar-yen pair. A standard lot, that is one lot for this pair will be equal to 100,000 US dollars.

If we talk about a mini-lot, i.e. 0.1 lot in terms of figures, it will be equal to 10,000 US dollars.

There is also such a notion as a micro lot. It is equal to 0.01 lot. This is 1,000 US dollars in monetary terms.