As you continue your journey to become a successful trader, you are exposed to information which sometimes you may find overwhelming. Relax and get a grip. How about we start with giving you some of the basic Forex terms you may bump into along the way?
Currency Pair
Currencies are traded in pairs. For example, the EUR/USD pair. EUR, the first currency, is what we call the base currency, while the USD is the quote currency.
Exchange Rate
An exchange rate is how much it costs to exchange one currency to another currency. Example: EUR/USD = 1.4112. This means you’ll need 1.4112 USD (quote currency) to buy 1 unit of EUR (base currency).
Quote
A Forex quote has two figures. The first figure is the bid/selling price, and the second figure is the ask/buying price.
Ask Price
Ask price appears to the right side of a Forex quote. It is the cost a trader will buy a currency at. For example, in this pair EUR/USD quoted at 1.2452/1.2457, the trader can buy the EUR for 1.2457.
Bid Price
The price a trader sells currency for. In the Forex quote, 1.2452/1.2457, the first figure is the bid price.
Spread
Wondering how Forex brokers make money? We call it spread. Spread is the difference between the bid price and ask price. Brokers offer two kinds of spreads: fixed spreads and variable spreads. Fixed spreads don’t change regardless of market conditions, while variable spreads change according to market liquidity.
Pip
A point in percentage or pip is the smallest measure of change in a currency pair in the Forex market. Let’s take the EUR/USD again as an example. If this pair moves from 1.2452 to 1.2453, that’s a 1 pip movement. And If it moves from 1.2452 to 1.2457, that’s a 5 pip movement.
