Super-Basic FOREX question

[Jools57]

Hi guys - I'm a Forex newbie. I started looking at Forex as a potential activity back in February, and so have had time to put some study in and have been reasonably successful on the two demoe platforms that I have tried.

However, there is one VERY fundamental question that still puzzles me - Why are forex rates quoted as, for example : EUR/USD - bid 1.5745, ask 1.5748 and yet when I want to change currency at my bank the figures are quoted as 1 EUR = 1.5745USD and 1 USD = 0.6350EUR ? The way forex rates are quoted tell me that for 1 USD I would get 1.5748 euros ......... I'm puzzled, puzzled, puzzled ....... until i understand this question I have a sneaky but strong suspicion that some/most of my virtual trading successes still involve elements of luck and guesswork.

Great to have found the forum BTW.

 

[pseudo straddle]

The way forex rates are quoted tell me that for 1 USD I would get 1.5748 euros

Jools, as far as I understand it -

1 unit of the first currency is roughly equal to the bid/ask amount of the second currency.

so eur/usd b/o about 1.5747 so 1 euro = app 1.5747 dollars

and if you see the pair quoted as usd/eur the b/o will be roughly 0.635

so 1 dollar will buy app 0.635 euros.

 

[Jools57]

Hi Rachel - thanks for the welcome. You too pseudo-straddle, for the answer. I'm afraid I'm still puzzled - forex rates are always very close - as in the example given above - EUR/USD bid 1.5745 ask 1.5748 and yet bank/bureau de change rates are always much more different - 1.5745 against 0.6350.

I believe that I understand the concept of bid and ask prices in forex - I just don't understand why forex quotes a pair at 1.5745/1.5748 and banks quote 1.5745/0.6350. I can't seem to rationalise that discrepancy.

 

[CHRISTO9HER]

Hi Rachel - thanks for the welcome. You too pseudo-straddle, for the answer. I'm afraid I'm still puzzled - forex rates are always very close - as in the example given above - EUR/USD bid 1.5745 ask 1.5748 and yet bank/bureau de change rates are always much more different - 1.5745 against 0.6350.

I believe that I understand the concept of bid and ask prices in forex - I just don't understand why forex quotes a pair at 1.5745/1.5748 and banks quote 1.5745/0.6350. I can't seem to rationalise that discrepancy.

I think that if they quote this way then what that means is that the Bureau de Change will sell you a euro for 1.5745 dollars, and they will sell you a dollar for 0.6350 euros. If you switch the rate on the second one (i.e. 1/0.6350) you get back to 1.5748. This can be used by them to make it less obvious what spread they are charging (unless you have a calculator in your pocket).

Also, I have never seen a Bureau de Change with a spread of 3 pips!!

 

[pseudo straddle]

just don't understand why forex quotes a pair at 1.5745/1.5748 and banks quote 1.5745/0.6350. I can't seem to rationalise that discrepancy.

Jools I understand your question a bit better now.

eur/usd are quoting you a buy/sell price

the banks are quoting you a buy/buy price

 

[gc1]

Well in a bureau de change, in France or in any other European country the customers would be looking to buy dollars (or other non Euro currencies), so it makes sense to quote USD/EUR, whereas in forex trading EUR/USD is the convention.