Useful Basic Terms of FOREX

May 21, 2018

 

 

Basic terminologies are really helpful to understand the concepts of Forex Market. The following is a list of basic terms widely used in Forex Trading:

 

Exchange Rate

An exchange rate is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country's currency in relation to another currency.

For example, if GBP/USD is 1.34170, 1 GREAT BRITAIN POUND is worth US$1.34170

 

Cross Rate

The currency exchange rate between two currencies, both of which are not the official currencies of the country in which the exchange rate quote is given in. This phrase is also sometimes used to refer to currency quotes which do not involve the U.S. dollar, regardless of which country the quote is provided in.

For example, if an exchange rate between the British pound and the Japanese yen was quoted in an American newspaper, this would be considered a cross rate in this context, because neither the pound or the yen is the standard currency of the U.S. However, if the exchange rate between the pound and the U.S. dollar were quoted in that same newspaper, it would not be considered a cross rate because the quote involves the U.S. official currency.

 

 

Pips

A pip is a standardized unit and is the smallest amount by which a currency quote can change. The actual cash amount this represents depends on the pip value. For currency pairs displayed to 4 decimal places, one pip = 0.0001. Yen-based currency pairs are an exception, and are displayed to only two decimal places (0.01)

 

Leverage

Leverage is the ability to gear your account into a position greater than your total account margin. For instance, if a trader has $1,000 of margin in his account and he opens a $100,000 position, he leverages his account by 100 times, or 100:1. To calculate the leverage used, divide the total value of your open positions by the total margin balance in your account. 

 

Margin

The deposit required to open or maintain a position. Margin can be either “free” or “used”. Used margin is that amount which is being used to maintain an open position, whereas free margin is the amount available to open new positions.

 

 

The major Forex pairs and their nicknames:

 

USD- US DOLLAR
EUR- EURO
JPY- JAPENESE YEN
GBP- BRITISH POUND
CHF- SWISS FRANC
CAD- CANADIAN DOLLAR
AUD- AUSTRALIAN DOLLAR

 

 

NICKNAME:

EUR/USD- EURO
USD/JPY- DOLLAR YEN
GBP/USD- CABLE or STERLING
USD/CHF- SWISSY
USD/CAD- DOLLAR CANADA
AUD/USD- AUSSIE DOLLAR
NZD/USD- KIWI


Major Currency Pairs

 

 

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