Basic Forex Terminology
When you are first starting out in Forex it is important to familiarize yourself with the Forex lingo. When you understand Forex terminology you can increase your success in the market as well as your personal understanding of how Foreign Exchange works.
The following terms are important for beginning Forex traders to understand:
Major Currencies – Major currencies include the 8 most traded currencies on the market. These include the US Dollar (USD), Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Swiss Franc (CHF), Canadian Dollar (CAD), New Zealand Dollar (NZD) and Australian Dollar (AUD). Minor currencies are made up of all other currencies, but are used more by professionals and advanced Forex traders.
Pip – A pip is the smallest unit in a price quote for currency. For instance, if a price is signified as 1.2345 a pip would be a single unit of change in the last digit. If this number went up 2 pips it would be 1.2347.
Base and Quote Currencies – A currency pair is written with the base currency first and quote currency second. For instance, in USD/CHF the Dollar is the Base Currency and the Franc is the Quote. In this case if the rate for USD/CHF was 1.6534 it would mean that 1 US dollar is equal to 1.6534 Swiss Francs.
Bid and Ask Prices – In Forex, the bid price is the price at which the market will buy currency from you and the ask price is the price at which they are prepared to sell. The ask price is generally higher than the bid price, so the market can make money. This difference I known as the “Bid/Ask Spread.”
Once you are familiar with these basic terms you are ready to take the plunge into more advanced Forex terminology.
