FOREX: Some Terminologies
To start off right in FOREX, you have to be familiar with the common terms of the field. Here are the main ones:
FOREX - This is the acronym for Foreign Exchange
SPOT - This is the market price for a currency. Future and options contracts trade accordingly to the spot price, plus or minus the differential.
CURRENCY PAIR - This is the relationship between currencies. For example, the Euro vs. The U.S. Dollar. The top term is the value of currency in relation to the bottom term. Say, if EUR/USD is quoted as 1.25, that means the euro is worth more than the U.S. dollar. Inversely, this is .80, which means that $1 can purchase .80 euro.
PIP - This is the acronym for Price Unit Point. This refers to the minimum move tracked by the forex market. The movement is expressed in decimals so one pip may be from 1.0000 to 1.0001 of a currency to another. The value of a pip depends on where the market is trading or what currency it is based on.
THE BIG SIX - This is the jargon that refers to the biggest, most traded six currency pairs namely. EUR/USD: euro vs. the U.S. dollar; GBP/USD: pound sterling vs. the U.S. dollar; USD/CHF: the U.S. dollar vs. the Swiss franc; USD/CAD: the U.S. dollar vs. the Canadian dollar; AUD/USD: the Australian dollar vs. the U.S. dollar; USD/JPY: the U.S. dollar vs. the Japanese yen.
CROSS PAIRS/ CROSS RATES - this refers to a currency relationship that does not involve U.S. Dollars, such EUR/GBP (euro vs. pound), JPY/AUD (yen vs. Australian dollar), or EUR/CHF (euro vs Swiss franc).
BID/ASK - the value of any currency is a representation of where the market is willing to sell or to buy. So you represent currency by bidding or asking its price. A low price is traded faster, so too is a high bid.
SPREAD - this indicates the difference between the bid and the asking price.
MARGIN AND LEVERAGE - a currency account is admitted to trading once cash is deposited into the account, making cash the margin money. A 1% margin to a currency lot of $100,000 EUR/USD, for example, means that person/firm can trade $1,000 to $100,000, which is expressed as leverage of 100:1.
MINI-ACCOUNTS - are those persons/firm who are provided to trade smaller sized lots, these accounts does not require much speculative capital. Often, mini accounts offers the opportunity to get a feel the atmosphere of forex, without too much risks involved. Mini accounts are also used by seasoned traders to test their trading strategies before gunning for larger accounts.