Do you want to start forex trading but find it difficult to understand some terms related to the currency pair? If yes, then this article has the solution.
Forex trading is taking the world by storm. Owing to this immense popularity, many people are planning to become a part of the forex world. So, if you are one of them, then it is extremely significant to learn about the currency pairs and some terms related to them. So, without any delay, let’s dive into the article.
Currency Pairs
If you plan to invest in forex trading, either with a big amount or short, it is necessary to comprehend some common terms regarding the currency pairs. So, here we will share some terms that everyone should know.
Major Currency Pair
If a currency is trading the most volume, opposed to the USD is named the major currency. Here are the names of some major currencies:
USD/JPY
USD/CHF
AUD/USD
USD/CAD
USD/GBP
Terms Related to Currency Pair
Base and Quote Currency
Every broker has a currency pair like USD/ZAR EUR/USD. In this currency pair, the first one is the base, and the other is called quote currency.
Example
If you are still finding it difficult to understand, consider an example. Let’s suppose the broker you are going to join is supporting the currency pair of USD/ZAR then the USD is the base currency and the ZAR is quote.
Bid and Ask Price
Bid price is defined as the market’s buying price. You can buy the base currency at this price. On the other hand, the ask price is defined as a price at which a trader can purchase the base currency is called the ask price.
Example
Let’s suppose you plan to trade USD/ZAR; your broker will quote two prices. One of the two quotes is the bid price, and the other is the ask price.
It should be noted that the bid price should always be low compared to the ask price.
Spread
Spread is defined as the difference between the bid and ask price. It is the fees that a forex broker charges for a trade. It is worth mentioning that the trader relies on the currency pair you want to trade and liquidity. Keep in mind that it will be better to keep the spread as low as possible.
Pips
Pip is the abbreviation of the percentage in point, and this term has immense popularity in the forex trading world. In simple words, we can say that pip is the smallest measurement and the market moves at this point.
It is the fluctuations in the currency pair’s last decimal points
Final Thoughts
To sum up the article, we would like to say that forex trading has gained a lot of popularity and many people are taking an interest in it. So, it is important to learn some common terms related to currency pairs that will assist you in learning forex trading better. If you have any queries, let us ask in the comments section of forex trading South Africa for beginners.
