Understanding forex terminology

Answer the 8 WHAT question!

  Trading Strategy

What's a base currency?

This is the first currency set that appears in the forex pair. It's the one that's bought or sold for the quote currency. In the example above, the GBP is the base currency.

What's a quote currency?

This is the second currency that appears in the pair, and is also known as the 'counter currency'. In the example above, the USD is the quote currency.

What's a bid price?

This is the price that a trader is willing to buy a currency pair at. It constantly fluctuates.

What's an ask price?

This is the price that a trader would ask for when selling the currency pair. The ask price also changes constantly and is driven particularly by market demand.

What's a spread?

The difference between the bid and the ask price is called the spread.

What's a pip?

Pip is an abbreviation for point in percentage and is the unit of measurement used to express the change in value between two currencies.

What are the minors?

Currency pairs that don't include the U.S. dollar in their pairing are known as the minors or the crosses.

The most actively traded crosses are derived from the three major non-USD currencies: EUR, JPY, and GBP.

What are exotic currency pairs?

Exoti... you're probably thinking exotic countries and exotic belly dancers, but let me stop your imagination there.The label has nothing to do with the location or size of the country (or the number of belly dancers) where the currency is used.

Exotic currency pairs are made up of one major currency paired with the currency of an emerging economy, such as Brazil, Mexico, Chile or Hungary.