Currency traders must become familiar also with the way currencies are quoted. The first currency in the pair is considered the base currency; and the second is the counter or quote currency. Most of the time, U.S. dollar is considered the base currency, and quotes are expressed in units of US$1 per counter currency (for example, USD/JPY or USD/CAD). Exceptions to this convention are quotes in relation to the euro, the pound sterling and the Australian dollar - these three are quoted as dollars per foreign currency. Forex quotes always include a bid and an ask price. The bid is the price at which the market maker is willing to buy the base currency in exchange for the counter currency. The ask price is the price at which the market maker is willing to sell the base currency in exchange for the counter currency. The difference between the bid and the ask prices is referred to as the Spread. The cost of establishing a position is determined by the Spread, and prices are always quoted using five numbers (for example, 121.55), the final digit of which is referred to as a "PIP" or a "Point". For example, if USD/JPY was quoted with a bid of 121.55 and an ask of 121.57, the 2-pip spread is the cost of trading this position.
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