Forex Markets have become a major trading place in modern business. We daily hear about the Forex terms on media but very few of us know exactly as to what these Forex terms actually mean. A brief overview of the basic Forex terms is given below to assist the readers in developing an understanding of the Forex Market.
In Forex, the rates are given as a comparison of two currencies and the first currency in such a pair is called the base currency. For example, in case USD/GBP is equal to 0.8, it means that the base currency which is Dollars is equal to 0.8 British Pounds.
It is the currency given in addition to the base currency in any comparison. For example in the above mention example of USD/GBP, the British Pound is the quote currency. It can also be said as the currency in whose terms the rate is quoted.
The pip means the smallest unit of price for any currency. For example, if a currency is rated as 2.003, it means that the smallest price unit is 0.003.
That is to say, the smallest fluctuation will be either 0.002 or 0.004, a difference of 0.001 decimal. In terms of dollars, the pip is always equal to one cent.
A pipette in Forex is even a smaller unit than the pip. It is equal to one-tenth of a pip. For a dollar, it is equal to one-tenth of a cent.
There is a set of eight currencies that have been recognized as the major currencies in the Forex market and all other currencies are measured by the comparison against the major currencies. These currencies are EUR, GBP, JPY, CAD, CHF, AUD, NZD, and USD.
All the currencies other than the eight major currencies are called minor currencies and they are valued by comparing their value against a major currency.
It signifies a pair of currencies in which none of the currency is in US Dollars. Such a pair shows very strange market behavior because in this case, the broker is dealing in double trade of US Dollars, i.e., one against each currency of the pair.
Whenever a client wants to open an account to act as a broker, he is needed to deposit an initial sum. This sum may range from 100 to 100000 USD. For every transaction, a small portion of this initial deposit is used as margin to control the deal. Similarly, the leverage means the ratio of the amount actually kept as margin to the amount used as capital in the transaction.