When you learn any new skill you need to learn many new things related to that skill. Many new terms are added to your dictionary on a regular basis. If you are a part of the trading platform, you need to know certain terms before starting your first trade. You may know some of the terms already, yet you need a revision on it.
Major and Minor Currencies
As you have decided to be a Forex trader, you already know what are you treading. This is a platform for trading currencies. The idea about the most traded currency is a must for you. The eight currencies that are heavily traded currencies are called the major currencies and they are USD, JPY, EUR, GBP, CHF, NZD, and CAD.
All the other currencies are known as minor currencies.
Base currency refers to the first currency so in any currency pair. The quote in a currency pair represents the difference in price value between the base and the second currency. In the currency market, the U.S dollar is considered as the base currency.
In any currency pair, the second currency is considered as the quote currency. But if you find it hard to monitor two specific price levels in the market watch, you might focus on the base or quote currency only.
Pip and Pipettes
By ‘pip’ we understand the smallest unit of price for any currency. Normally, currency pairs consist of five digits and pip is the point in the fourth place of the currency pair. For example, EUR/USD trading at 1.11220. Here, 2 is the fourth point and we will consider it as pip. But if you trade the stocks market, you might experience difficulties at the initial stage since some of the advanced brokers might use 5 digit pricing in their trading platforms.
In the Forex market, the bid price means the price at which the market is ready to buy a specific currency pair. The traders can sell the base currency at this price. The bid price can be found on the left side of the quotation.
Ask price is also known as the offered price. Ask price means the price at which the market is ready to sell a specific currency pair. The traders can buy their base currency at this price. The asking price can be found on the right side of the quotation.
In the trading platform, usually, you should see the exchange rate in the following format.
Base currency/ Quote currency = Bid / Ask
The certain amount of costs or commission that a trader has to pay for every trade is known as transaction cost and it varies from broker to broker.
There is a formula to calculate transaction cost:
Transaction cost = Ask price – Bid price
By cross-currency, we understand the currency where there is no U.S. dollar in the currency pair. This pair displays variable price behavior. Cross-currency pairs bear a higher transaction cost.
If you want to get trade the market with a leverage trading account, you need to deposit a minimum amount with that broker. The size of the minimum is not the same, rather it varies from broker to broker.
In the Forex market, the term leverage is used to indicate the loan that is offered Forex broker to a trader who has less balance in his account to invest for trading. By taking leverage he can make a huge profit without having less capital. Leverage creates the opportunity for new traders to take a position in the Forex market. But sometimes it also causes loss even becomes the reason for losing position. Before taking leverage, you have to be cautious and know the trading platform very well.
So, these are some terms which you will get frequently in the Forex market platform.