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Forex Knowledge: An Overview

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Overview on Forex

As we have gone through our previous articles, you have some knowledge about the basic understandings of forex. In this article, we will try, sum up, the article with the extracts of the previous articles major ideas and give you an overview on Forex. This article will circulate all the basic ideas of forex in one.

Currencies of Forex

The currencies of forex are divided into two groups, the major currencies, and the minor currencies. There are 8 major currencies of Forex, The other currencies are represented as minor currencies.

Base and Quote Currency

The base and Quote currency idea in forex is an important one. The base currency is the first currency of a pair. For example, in a currency pair GBP/USD, Britain Pound is the base currency.

The quote currency is the second currency of the pair. In the above example, the quote currency is the USD. It also represents the value of the Base currency. Normally in the US market, the US Dollar is always taken as the Base currency.

Pip

Pip is the movement in decimal in your currency pair. If your currency pair JPY/CHF move from 1.5108 to 1.5109 then the pip movement is 1.  It is very important in making money in Forex. If the pip movement is negative, you will lose money. If the pip movement is positive, you will make money. Depending on your lot size, this small pip can largely contribute to your money making.

Pipette

The pipette is the smaller fraction of Pip. If the pip digit decimal is placed in 3 or 5 places, it is called puppet

Bid and Ask

The bid is the price you are buying the currency pair. Asking is the offer price, that seller gives you when selling the currency pair to you.

Spread

The difference between ask and spread is known as the bid.

Transaction cost

It is the cost which gives you the idea if you make money or not. The formula of the calculating the transaction cost is simple. Simply minus the bid price from your asking price. That is, minus the price you have used you buy the money from the amount that you received by selling the money.

Cross Currency

Most of the currency pair of the Forex market has USD in their pair. Some of the pairs do not have the US Dollar. These pairs are known as the cross currency. Examples of Cross currency include GBP/JPY, EUR/GBP.

Margin

The margin is the advantage which you get when you are trading in Forex. For example, if you are to trade in 10,000 dollars, you do not have to pay the full amount. The margin of the account is .5% and you have to pay only 50 dollars for the trade.

Leverage

Leverage is the cash that is being put down in your account to make you trade in Forex. It is the deposit money like a bank, where you have to deposit it the account to open an account with them for banking.

These are the most known basic ideas of Forex trading. If you are familiar and well acquainted with the basic understandings of Forex, you can be successful in money making.