The base currency is the first currency in any currency pair. It shows how much the base currency is
worth as measured against the second or counter currency. For example, if the USD/CAD rate equals
1.0436, then one USD is worth CAD 1.0436.
In the FOREX markets, the U.S. dollar is usually considered the “base” currency for quotes, which
means that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The
primary exceptions to this rule are the British Pound, the Euro, and the Australian dollar for the major
Currencies.
Quote or Counter Currency
The quote or counter currency is the second currency in any currency pair. This is frequently called the
pip currency and any unrealized profit or loss is expressed in this currency. E.g. USDJPY… JPY is the
counter currency.
Cross Currency
A cross currency is any currency pair in which the U.S. dollar is not quoted or present. Moreover, these
pairs are move volatile in reaction and will advise the newbie traders to ignore them for a start. E.g. for
the advanced traders, when buying EUR/GBP you could also be buying a EUR/USD currency pair and
selling a GBP/USD but caution must be taken! The three most frequently traded cross rates are
EUR/JPY, GBP/EUR, and GBP/JPY.
Bull or Bullish / Rally
This is simply refers to an up trending market or a period in which prices appreciate in value.
Bear or Bearish / Decline
It’s a down trending market or a period in which prices are depreciating.
Pips
A pip is the smallest unit of price for any foreign currency. Therefore, a single pip equals the smallest
change in the last decimal place of any currency price, that is, 0.0001. Therefore, if the quote currency
in any pair is USD, then one pip always equals 1⁄100 of a cent. One notable exception is the USD/JPY
pair where a pip equals $ 0.01 (one U.S. dollar equals approximately 91.58 Japanese yen). Pips are
sometimes called points.
Margin
Traders are allowed to open FX account with Forex broker with minimum amount of deposit and this
varies from broker to broker, but some brokers require minimum of $100 upward. Whenever you
execute any trade, a certain percentage of your account balance in the margin account will be referred
to as your initial margin requirement for any other trades that you might want to execute base on the
currency pair, current price, and the number of lot or volume traded.
Margin Call
This is a call from a FOREX broker to a client in which your minimum balance is below what you
could trade with. It’s simply means a way of losing out! No more money in your account to continue
the trade you are in already.
Forward Margin
These are the discounts or premiums between the spot rate and the forward rate of a currency; usually
quoted in points or pips.
Initial Margin
This is the margin required by a foreign exchange firm to initiate the buying or selling of a determined
amount of currency.
Introducing Broker (IB)
Is a person or an organization that acts as intermediary between clients and brokerage firm but doesn’t
collect money or other assets from customers to support their transactions. This is another goldmine
that a lot of people are unaware of in the Forex trading business. Some people don’t even trade, all they
do is to look for reliable Forex brokerage firms and market their products and services to others and
make what is called rebates/ commissions.
ECN
Is an acronym for Electronic Communication Network and this is an electronic trading system that
automatically match buy and sell orders at specified prices. An ECN connects major brokerages and
individual traders so that they can trade directly between themselves without having to go through a
middleman
Hedging
This is a way of reducing risk in the Foreign Exchange market by taking two positions that will offset
each other if prices change as to cover up losses. Hedgers use the futures markets too protect their
trading businesses from adverse price changes.
Mid Price or Middle Rate
The price halfway between two prices, or the average of both buying and selling prices offered by the
market makers.
Momentum
Is the measure of the rate of change in price in the financial market.
Overbought
The condition of a specific move when the market price has risen too far with a set up for a corrective
pullback or a period of consolidation; the opposite is Oversold.
Oversold
The condition of a specific move when the market price has fallen and is in a position for a corrective
rally or a period of consolidation; the opposite is Overbought.