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Impress Your Date with Forex Trading Lingo
Major and Minor Currencies The seven most frequently traded currencies (USD, EUR, JPY, GBP, CHF, CAD, and AUD) are called the major currencies. All other currencies are referred to as minor currencies. Do not worry about the minor currencies, they are for professionals only. Actually, on this site we will only be covering what we call the Fab Five (USD, EUR, JPY, GBP, and CHF). These pairs are the most liquid and are the only currencies we actually trade. Cross Currency A cross currency is any pair in which neither currency is the U.
dollar. These pairs exhibit erratic price behavior since the trader has, in effect, initiated two USD trades. For example, initiating a long (buy) EUR/GBP is equivalent to buying a EUR/USD currency pair and selling a GBP/USD. Cross currency pairs frequently carry a higher transaction cost.
The three most frequently traded cross rates are EUR/JPY, GBP/EUR, and GBP/JPY. Base Currency The base currency is the first currency in any currency pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF rate equals 1.6350, then one USD is worth CHF 1.6350. In the Forex markets, the U. dollar is normally considered the “base” currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British pound, the Euro, and the Australian dollar.
Quote Currency The quote currency is the second currency in any currency pair. This is frequently called the pip currency and any unrealized profit or loss is expressed in this currency. Bid Price The bid is the price at which the market is prepared to buy a specific currency pair in the Forex market. At this price, the trader can sell the base currency. It is shown on the left side of the quotation. For example, in the quote EUR/USD 1.2812/15, the bid price is 1.2812. This means you can sell on U. dollar for 1.2812 Euros. Ask Price The ask is the price at which the market is prepared to sell a specific currency pair in the Forex market. At this price, you can buy the base currency. It is shown on the right side of the quotation. For example, in the quote EUR/USD 1.2812/15, the ask price is 1.2815. This means you can buy one U. dollar for 1.2815 Euros. The ask price is also called the offer price. Bid/Ask Spread The spread is the difference between the bid and ask price. The “big figure quote” is the dealer expression referring to the first few digits of an exchange rate. These digits are often omitted in dealer quotes. For example, the USD/JPY rate might be 118.30/118.34, but would be quoted verbally without the first three digits as “30/34”.
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