Online Forex Trading | Esssential Forex Trading Terms

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Esssential Forex Trading Terms

Before you can utilize forex trading software on one of the many online forex trading strategies, and before you think about the optimal Forex trading times, there are the several essential Forex trading terms that every Forex trader needs to familiarize himself or herself with. Here are the essential Forex trading terms:

  • Currency Pairs: Every forex transaction involves two currencies, one currency that you are selling, and one that you are buying.
  • Major and Minor Currencies: There are seven major currencies that are traded. All of the other currencies would be considered minor currencies. The major currencies are: United States Dollar (USD); European Euro (EUR); Japanese Yen (JPY); Great Britain Pound (GBP); Swiss Franc (CHF); Canadian Dollar (CAD); Australian Dollar (AUD).
  • Base Currency: This is the first currency mentioned in the trade pair. You use the base currency as the measure of its value against the second currency. For example, a EUR/USD = 1.54400 means that 1 Euro (EUR) is worth 1.54400 United States Dollars (USD).
  • Quote Currency: This is the second currency mentioned in the trade pair. Your profit and/or loss is a measure of this currency.
  • Cross Currency: This is a pair of currencies that are traded in which neither currency involves the US Dollar (USD). Typically, these types of traded pairs, when traded, actually involve the buying and selling of two different currency pairs. The US Dollar is the main currency. So all cross currency trades involve trading the US Dollar , regardless. As an example, if you are trading the EUR/GBP pair, you are actually buying a EUR/USD pair and simultaneously selling a GBP/USD pair. Since these trades are actually multiple trades, they typically have higher transaction costs.
  • Pips: A pip is the smallest unit of price for any foreign currency. Most currency pairs consist of four decimal places. The pip represents the smallest change in the fourth decimal place.

If you want to trade in the forex market, you must familiarize yourself with these six terms.

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