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Key terms of the Forex market: pip (point), exchange and others

Key terms and concepts of the Forex market

International exchange market (Currency exchange) — is the exchange, where operations on purchase and sale of currency take place between participants of the Forex market;

Forex pip (point) – is the minimum change of price of currency rate

Currency operations – contracts of participants of currency market on purchase and sale and settlement, conversion operations etc.;

Currency rate (currency quote) — the price of currency unit of one country expressed in currency unit of another country.

Types of Forex quotes:

  • Direct quote – shows the amount of US dollars contained in national currency unit;
  • Indirect quote – shows the amount of national currency contained in one US dollar;
  • Cross rate – currency units of one country expressed in currency units of another country;

Major currencies

  • EUR – United European currency
  • USD – US dollar
  • GBP – British pound of sterling
  • CHF – Swiss Frank
  • JPY – Japanese Yen

Other currencies

  • AUD – Australian Dollar
  • NZD – New Zealand Dollar
  • CAD – Canadian Dollar

Currency pair is the name of text symbols of currency.

For example, EUR/USD = 1.2880

where:

EUR – is the base currency (traded currency)

USD – quoted currency

Base currency (traded) is always put the left.

Quoted currency is always the second

Main currencies traded on the market

EUR/USD – European currency to US dollar
GBP/USD – British pound of sterling to US dollar

USD/JPY - US dollar to Swiss Frank
EUR/CHF – European currency to Swiss Frank
USD/CHF - US dollar to Swiss Frank
GBP/JPY - British pound of sterling to Japanese Yen
GBP/CHF - British pound of sterling to Swiss Frank
EUR/GBP - European currency to British pound of sterling
EUR/JPY - European currency to Japanese Yen
AUS/USD - Australian Dollar to US dollar

USD/CAD - US dollar to Canadian Dollar

All speculations made by a trader are always conducted with base currency. Thus, buying EUR/USD, you buy Euro for US dollars.

Spread – is the difference between price of purchase (Ask) and price of sale (Bid)

Cost of one point depends on volume of your trade and is equal:

Volume of trade multiplied into minimum change of price = cost of point

Open position – is the trade for purchase/sale, which is not closed and is present on market.

Credit leverage – is the relation of borrowed capital to trader's own funds.

For example, Forex broker provides trader with credit leverage 1:100, thus, trader can make a trade with volume 100 times more than his deposit.

 

 

 

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