FX Trading Blog

As a New forex trader you should get to know the basics so as to get started. In this article we will look at the forex lingo. We will look at various terms that you will come across. Forex trading is not very difficult but there are procedures that you would have to follow so as to work effectively in any trade that you would be of your interest.  Therefore you definitely need to know the basic before you start investing with your hard earned money. Knowing the forex lingo is the root key to your success in the forex markets. Now let us look at the following terms:

The Spread – This is the difference between the price of selling your currency contract (the bid price) and the price of buying contracts (the ask price).

Several dealers modify their currency prices in various ways. Some offer fixed spread and this is known as “consistent spreads” and others offer variable spreads. The consistent spreads are generally wider than what these dealers pay to the banks and the variable spreads will widen when the markets volatility increases.

Retail customers— this depicts you. Retail customers access forex through their dealers.

Pip (Percentage In Point): The word pip is often used in forex and to for the new forex traders they will definitely want to know what this means due to the fact that they will hear this word most often during their learning and forex trading. Generally, in forex trading a pip is used as a measure of your profit or losses. A pip is also known as a point and it the smallest unit of measurement for currency rates. For example, if a currency pair has got four decimal places – e.g 1.2343 hence the last decimal point would be known as the pip.  Therefore, when a currency pair’s rate changes from 1.2340 to 1.2350 we say it has moved up by 7 pips/points. As a forex trader you make profits if the pips move your way.

Currency Pair: In order for there to be an exchange rate there has to be a comparison between one currency and another. This comparison is what makes the pairs chance value. For example, the forex contracts Euro vs. US dollar is one of the pairs that is traded most often and also to include the US dollar vs. the Japanese Yen (USD/JPY).

Major Pairs: These are the pairs which are combined with the USD and which are of high liquid. For example the common major pairs are GBP/USD, EUR/USD. Many traders often trade on the major pairs because they are very profitable and traders find it very easy to enter and exit a trade.

The Crosses: The crosses are the pairs that do not contain a combination with the US dollar. For example, EUR/GBP, GBP/JPY.

Exotic Pairs: Exotic pairs are the currency pairs that contain the US dollar and combined with a currency from countries of emerging or small global economy. For example, USD/NOK, USD/SEK.