Let me learn about forex terms

Before entering forex market you should make certain that you are familiar with the terms customarily used in forex trading.

Each country’s currency is depicted in a three letter word. For instance : US dollars is depicted by USD and Japanese Yen by JPY. The first currency in the quote is known as base currency. JPY is the base currency in JPY/USD. A quote of USD/JPY 2.34 means that one USD is equal to 2.34 JPY.

Pip: Pip refers to the smallest increment in the value of the currency. For instance in USD/JPY, a move from 251.35 to 251.36 is one pip.

Offer price: It is the price displayed to the right of the currency pair. It mentions the price at which the base currency can be bought.

Bid price: It is the price displayed to the left of the currency pair. It refers to the value at which the base currency is sold

Spread: The difference between Bid and Ask price in terms of pipes. The narrower the spread, the better for the trader.

Cost of Carry: The cost, referred in terms of pips per day, for holding an open position.

Cross Rate: The exchange rate between any two currencies that are not of the country in which the currency pair is quoted. For instance in UK, USD/JPY would be considered as a cross rate but in US it won’t be considered so.

Limit: An order to buy at a specified price when the market moves down to that price, or to sell at a specified price when the market moves up to that price.

Liquidity: A function of volume and activity in a market. It is the efficiency and cost effectiveness with which positions can be traded and orders executed. A more liquid market will provide more frequent price quotes at a smaller bid/ask spread.

Margin: The amount of money needed in a person’s account to maintain an open position.

Margin Call: A requirement initiated by the broker to deposit more funds in order to maintain an open position.

Market Order: An order to buy at the current Ask price.

Premium: The cost, often quoted in terms of dollars or pips per day, of holding an open position.

Spot Foreign Exchange: It symbolizes the currency exchange taking place between two counterparts, most probably between banks, so it is referred to as the Inter bank market.

Major currencies: Major currencies change frequently and they refer to the mostly traded currencies currently. USD, JPY, EUR, GBP are the current major currencies in the market.