Price Quoting in FX

The spot FX market transactions are always the purchase of one currency in exchange for the sale of another (and vice-versa). Price quotes are always given for one instrument; the instrument being a pair of currencies, such as USD/JPY or EUR/USD.

For currency pairs, the listed prices express the value of the first currency-known as the base currency-in terms of the second-known as the counter currency. For example, a price of 105.10 for the USD/JPY instrument, or currency pair, implies that one US Dollar (base currency) is worth 105.10 Japanese Yen (counter currency). There is no such thing as a price for just one currency alone. The smallest unit of change in a currency's price, usually a tenth for currency pairs in terms of JPY and a one-thousandth for other currency pairs, is known as one "pip." A movement of one pip is a movement on EUR/USD from 1.2620 to 1.2621.

In spot FX trading, a price quote on an instrument, or currency pair, is actually the combination of two prices-a "bid" price and an "ask" price. The "bid" price is the price at which the dealer is willing to buy the base currency (i.e. willing to let you sell to them the base currency) in exchange for the counter currency. The "ask" price is the opposite; it is the price at which the dealer is willing to sell the base currency (i.e. willing to let you buy from them the base currency) in exchange for a counter currency. The difference between the "bid" and the "ask" price is known as the "spread."