Trading Manual part 8: Forex Terms & Phrases


Forex Terms & Phrases

As a professional trader, you need to know everything about the different terms we
use on a daily basis. We have tried to break down the main terms for you in this part
of the course. You will need to be fully aware of them in order to continue the
course! Make sure you get your mind around them and don’t hesitate to write us if
there remain any questions.


A Pip is a measurement of how far the price has moved. Pip stands for ”percentage in
points”. A pips is the smallest movement in the price action we use. A normal Forex
quote exists of 5 digits 0,0000. The pip is the 5″‘ digit which can be found in the
quotation. So, when the price from GBP/USD moves from 1.2320 to 1.2346 we can
calculate the pip difference. 1.2346 — 1.2320 = 26 pips difference.
So, to determine the worth of 1 pip, we should look at your account size as it
depends on the size of positions you could take. But also the amount or risk you can
take plays an important role! To calculate the profit based on the amount of pips per
trade, you simply multiply the amount of pips 26 with the value per pip €10 (for
example) = €260.


Some trades, and especially swing traders, are mentioning points in their trading
routine. A point = 100 pips. So, if the price from a certain asset moves from 1.2300 to
1.2400 the has basically moved by 1 point.

Base & Quote currency

Within the Forex market, the currency units are quoted as currency pairs. The base
currency — also called the transaction currency — is the first currency appearing in a
currency pair quotation, followed by the second part of the quotation, called the
quote currency or the counter currency. For accounting purposes, a firm may use the
base currency as the domestic currency or accounting currency to represent all
profits and losses.

ln Forex, the base currency represents how much of the quote currency is needed for
you to get one unit of the base currency. For example, if you were looking at the
CAD/USD currency pair, the Canadian Dollar would be the base currency and the U.S.
Dollar would be the quote currency.

In Forex, currency pairs are written as XXX/YYY or simply XXXXXX. Here, XXX is the
base currency and YYY is the quote currency. Samples of these formats are GBP/AU D,

When provided with an exchange rate, currency pairs indicate how much of the
quote currency is needed to buy one unit of the provided base currency. For
example, reading EUR/USD = 1.55 means that €1|s equal to $1.55. So this basically
says that in order to purchase €1, a buyer must pay $1.55. The currency pair
quotation is read in the same manner when selling the base currency. If a seller
wants to sell €1, he will get $1.55 for it.

Forex quotations are stated as pairs because investors simultaneously buy and sell
currencies. For example, when a buyer purchases EUR/USD, it basically means that he
is buying Euro and selling U.S. dollars at the same time. Investors buy the pair if they
think that the base currency will gain value in contrast with the quote currency. On
the other hand, the sell the pair if they think that the base currency will lose value in
contrast with the quote currency.


In order to trade the Forex market, you will need to get access through it. This can be
obtained through a broker. The broker gives us retail traders the ability to trade all
those different currency pairs out there. It’s therefor perfectly understood that they
also need to earn money. Their income is earned through spread. They basically earn
money through every transaction which is made by them!

spread example

As mentioned before, there are two prices which can be found on a currency pair.
Those are given as the bid and ask price. The difference between those rates is
basically what we call the “spread“. This is basically the commission for the broker.
So, when you are buying a currency pair you will be paying the Ask price which is
quoted on the broker platform. When you are selling a currency pair you will be
paying the Bid price which is also quoted on the broker platform.

Next part of the Trading manual coming out soon! so keep tuned!!


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