Impress Your Date with Forex Lingo

You have to learn the lingo, just as you have to master any new skill ...... In other words, it's like trying to win the heart of your lover.

Before you make your first trade, you, the novice, must know certain words by heart.

You may already be familiar with some of these words, but it never hurts to go over them again.

Major and Minor Currencies

The main currencies or “majors” are the eight most often traded currencies (USD, EUR, JPY, GBP, CHF, CAD, NZD, and AUD). These are the sexiest and most liquid.

The term “minor currency” refers to all other currencies.

Base Currency

The base currency is the first currency in any currency pair. Currency quotes show the value of the base currency relative to the second currency.

Let's say, for example, that 1 USD is worth 1.6350 CHF if the USD/CHF exchange rate is 1.6350

The U.S. dollar is usually considered the “base” currency for quotes in the foreign exchange market, meaning that the quote is expressed in units of 1 U.S. dollar against the other currencies in the pair.

The British pound, the euro, the Australian dollar and the New Zealand dollar are the main exceptions to this guideline.

Quote Currency

In any currency pair, the quote currency is the second currency. This is commonly referred to as the pip currency, and it is used to reflect any unrealized profit or loss.

Pip

The smallest unit of price in any currency is a pip.

Nearly all currency pairs contain five significant digits, and the decimal point is usually placed immediately after the first number, as in EUR/USD = 1.2538.

A single pip equals the lowest change in the fourth decimal place in this case, which is 0.0001.

As a result, in any pair where the quote currency is USD, one pip equals 1/100 of a cent.

There are several notable outliers, such as pairs involving the Japanese yen, where a pip equals 0.01.

Pipette

A pip is a tenth of a pip. For extra precision in quoting rates, some brokers use fractional pips, or pipettes.

EUR/USD, for example, moved two pipettes from 1.32156 to 1.32158.

Bid Price

In the forex market, the bid is the price at which the market is willing to acquire a specific currency pair.

The dealer can sell the basic currency at this price. It is displayed on the quotation's left side.

The bid price in the GBP/USD 1.8812/15 quote, for example, is 1.8812. This means you'll get 1.8812 US dollars for one British pound.

Ask/Offer Price

In the forex market, the ask/offer is the price at which the market is willing to sell a specific currency pair.

You can purchase the foundation currency for this price. It is displayed on the quotation's right side.

The ask price in the EUR/USD 1.2812/15 quote, for example, is 1.2815. This means that one euro costs 1.2815 dollars in the United States.

The offer price is often referred to as the ask price.

Bid-Ask Spread

The spread means the difference between the bid and ask prices, and the “big figure quote” means that the first few digits of the exchange rate are used by the dealer.

These numbers are often omitted from a dealer's quote.

The USD/JPY rate could be 118.30/118.34 and it would be expressed as “30/34” if the first three digits were not present.

This would also represent a USD/JPY spread of 4 pips.

Quote Convention

In the forex market, exchange rates are expressed in the following format:

Bid / Ask = Base currency / Quote currency

Transaction Cost

It is the transaction cost of a swap trade, so the bid/ask spread is important

A buy (or sell) trade in the same currency pair followed by a sell (or buy) trade of the same size, this means a swing trade

Here is the formula for calculating transaction costs

Sell price - buy price = transaction cost (spread).

Cross Currency

A currency pair in which any currency isn't the US dollar is known as a cross.

These currency sets display unusual value conduct on the grounds that the broker really opens two-dollar exchanges.

For example, starting a long (buy) position in EUR/GBP is the same as buying the EUR/USD currency pair and selling the GBP/USD currency pair.

Compared to other currency pairs, cross currency pairs have higher transaction costs.

Margin

You must deposit a minimum amount with them when you want to open a new margin account with a forex broker

Can range from $100 to $100,000, the minimum deposit amount varies from broker to broker

When you make a new trade, a percentage of your margin account balance will be set aside as the initial margin requirement for the new trade.

The amount is determined by the underlying currency pair, current market price, and number of units (or lots) transacted. The base currency is always referred to when the lot size is mentioned.

Let's imagine you start a micro account with a leverage of 200:1 and a margin of 0.5 percent. Mini accounts are used to exchange small amounts of money. Assume that one tiny lot costs $10,000.

Instead of needing to contribute the whole $10,000, you would only need $50 ($10,000 x 0.5 percent = $50) to open one mini-lot.

Leverage

Leverage is the ratio of the amount of money used in a trade to the required margin (“margin”), and it simply refers to the ability to manipulate a huge number of financial instruments with a small amount of money.

Ranging from 2:1 to 500:1, the leverage offered by different brokers varies widely.

Now that you've dazzled your dates with your forex lingo, why don't you demonstrate the various forms of trade orders？