Different Forex Lingos Every Trader Should know

Every different vocation has some esoteric linguistics that all practitioners of that vocation need to learn. Without knowing the lingo, no one can claim to be a part of any endeavor. Learning about something becomes much easier after you familiarize yourself with all the jargon and terms pertaining to that task.

Different Forex Lingos

Before engaging in real market trading, newcomers and enthusiasts must know about certain terms thoroughly. Because they will confront all these terms over and over. Without having a concrete knowledgebase of them, none can conduct their trading effectively or at all.

1.      Minor and Major Currencies

The only asset an investor gets to invest in the Forex market is different countries’ currencies. All the commonly traded currencies can be categorized into two prime types depending on their traded rate and offered opportunities.

Eight currencies that represent eight major influential economies of the world are called major currencies. A high level of liquidity and popularity are two major characteristics of these currencies. They are

  • USD
  • EUR
  • GBP
  • JPY
  • CHF
  • CAD
  • AUD
  • NZD

Except for these majors, all the others are minor currencies.

2.      Currency Pair

A currency pair comprises of two different currencies that can be exchanged with each other depending on their comparative value at a given moment.  Make sure you precisely know about the currency pair’s price movement or else it will be tough to make money in the options market.

For example, EUR/USD is a currency pair. When the US Dollar’s price gets lower, traders in Hong Kong approach the market to exchange Euros with Dollars. Conversely, when the Euro’s price plummets, traders attempt to sell them.

3.      Base Currency

In a pair, the first currency is a base currency. The currency quote represents the apparent worth of the base against the quote. The latter’s value reflects the market change and shows the other one’s acceptability in the market. The base always declares only one value, and that is 1, because it’s the basis of a pair.

For instance, for the USD/CHF pair, if the quoted rate is 1.6355, it will indicate that a trader can trade 1.6355 CHF for 1 USD.

4.      Quote Currency

This is the second currency of a pair. There are several other names pervasive for the quote, like pip or secondary currency. All the unrealized profit and loss is defined by the quote part of a pair.

5.      Pip

This is the unit of measurement for an asset in the Forex market. A pair has a maximum of five digits value, and among them, any change at the fourth decimal point will show the pip difference.

In these cases, a pip will be equivalent to the least possible change. However, there is another instrument named the fractional pip, which is one-tenth of a pip. This fractional pip is also known as a pipette.

For a quoted price of 1.0201, which rises and becomes 1.0202, the change in the fourth decimal place is 1. We call it a 1 pip rise.

6.      Bid Price

The price at which the market is ready to buy a certain asset in Forex is the bid price. At this price, an investor withholds the base currency. In a visual representation of a quotation, the bid price is the one on the left-hand side.

7.      Ask Price

Also known as the offer price, the ask rate is the price at which the market is ready to sell the base currency. In the quotation, it is placed on the right side. For example, If the quoted price for a pair is 1.8812/15, the 1.8812 is the bid price, while 1.8815 is the ask price.

8.      Quote Convention

An exchange rate of a currency is expressed in the following manner.

Base/Quote = Bid/Ask

The Forex market is vast, and it tends to have a massive amounts of spcial vocabulary that is used by participants. Not all terms need to be remembered traders, but the most important ones should be committed to memory.