Make an impression on your date with Forex lingo

You must learn the lingo, just as you must master any new skill... especially if you want to win your love's heart.

June 17, 2022 - 03:56 PM 288 views

Make an impression on your date with Forex lingo

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You must learn the lingo, just as you must master any new skill... especially if you want to win your love's heart.

Before making your first deal, you, the rookie, must know certain words like the back of your hand.

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

Major and Minor Currencies

The major currencies or "majors" are the eight most often traded currencies (USD, EUR, JPY, GBP, CHF, CAD, NZD, and AUD). They are the most liquid and sexiest.

The term "minor currency" refers to all other currencies.

Base Currency

In any currency pair, the base currency is the first currency. The currency quote shows the value of the base currency in relation to the second currency.

If the USD/CHF rate is 1.6350, for example, one USD is worth CHF 1.6350.

The US dollar is usually considered the "base" currency for quotes in the forex market, which means that quotes are expressed as a unit of 1 USD per the other currency in the pair.

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

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 have five significant digits, and the decimal point is usually placed immediately after the first digit, as in EUR/USD = 1.2538.

A single pip equals the smallest 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 added precision in quoting rates, some brokers use fractional pips, or pipettes.

In the EUR/USD currency pair, for example, moved two pipettes from 1.32156 to 1.32158 values.

The 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.

The 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.

The Bid-Ask Price

The difference between the bid price and the ask price is called as Spread.

The first few digits of an exchange rate are referred to as the "big figure quote" by dealers.

In dealer quotes, these digits are frequently omitted.

The USD/JPY rate, for example, may be 118.30/118.34; however it would be expressed vocally as "30/34" without the first three digits.

USD/JPY has a 4-pip spread in this case.

Quote Convention

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

Bid/Ask price = Base Currency/Quote Currency

Transaction Cost

The bid/ask spread is significant since it is also the transaction cost for a round-turn trade.

A round-turn trade is defined as a buy (or sells) trade followed by an equal-sized sale (or buy) trade in the same currency pair.

The transaction cost of the EUR/USD rate of 1.2812/15, for example, is three pips.

By using the following formula, the transaction cost is calculated as follows:

Transaction cost (Spread) = Ask price – Bid price

Cross Currency

Any currency pair in which neither currency is the US dollar is referred to as a cross-currency.

Since the trader has effectively opened two USD trades, these pairs exhibit unpredictable price behaviour.

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

Cross-currency pairs have a greater transaction cost than other currency pairs.

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

The minimum deposit varies from broker to broker and can range from $100 to $100,000.

When you place a new transaction, a percentage of your margin account balance is placed 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 take an example, consider you started a mini-account that offers a 200:1 leverage or 0.5% margin. However the mini-account trades only the mini-lots and one mini-lot is equivalent to $10,000.

Instead of offering the complete $10,000 amount, you can open one mini-lot account that only needs $50.

Margin

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

The minimum deposit varies from broker to broker and can range from $100 to $100,000.

When you place a new transaction, a percentage of your margin account balance is placed 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

The ratio of the amount of money employed in a transaction to the required security deposit (the "margin") is referred to as leverage.

It's the capacity to manipulate enormous dollar quantities of a financial instrument with a tiny amount of money.

The leverage offered by different brokers varies substantially, ranging from 2:1 to 500:1.

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

Read More Article:

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When to Buy and When to Sell a Currency Pair

What is the Best Way to Make Money Trading Forex?

In the Forex Market, What is actually traded?

In Detail, What Is The Forex Market (FX)?

What is a pip in forex trading?

Currency Pairs: Buying and Selling

Forex Market (FX): It’s Size and Liquidity

In the Forex Market (FX), What Is A Lot?

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