Forex Trading is an opportunity for traders to profit via speculation of currency exchange rates in a particular period. Forex traders’ market executions and decisions are usually based from the upward or downward movement of these rates. As you are reading this article, it is very amazing to note that there are more or less than 5 Trillion Dollars worth of currencies that are circulating in forex markets all around the world. As for the nature of this trade, experts can attest that this manner of trading is easy to follow but it requires thorough study and analysis of important concepts in order to get good results. To help you deal with it, we have listed 6 Important Forex Terms which will help you dig deeper into the world of currency trade.

1.Over-the-counter market

This is a market type which is decentralized. Thus, the people who are involved in this market can perform their trades even without the help of a broker. Forex Trading, stocks, commodities, and other  forms of financial instruments are directly exchanged from one trader to another. Additionally, this market does not require a physical market because transactions are usually done via electronic devices such as smart phones and computers.

2. Base Currency and Quote Currency

The Base currency is the amount of currency that is depicted in the first part of a currency rate. Quote Currency on the other hand is the rate that comes with the base currency.

3. Forex Pair

These pairs of currency rates illustrate how much of the stated quote currency is needed to be exchanged for the base’s single unit.

4. Pips, Lots and margins

These terminologies are relevant to each other. Pips is a term used by traders when they attempt to measure the amount of movement of a specific currency pair. Lots on the other hand are terms used by traders to convey the amount of transaction. Margins are the amount of money that is deposited in an account which is meant to be “taken cared of” by a broker  while a forex trade is available for trading. 

5. Leverage

This is the utilization of borrowed funds to make sure that a trading position will get an increased profit that is even higher than what is deposited in the account. This element is usually used to earn from the small fluctuation of rates in currency pairs. Remember that leverage is also harmful to one’s account when used in the wrong way.

6.  Major, Minor and Exotic Forex Pairs

These types of pair vary from each other. Majors are the currency pairs that are usually in demand in the market with USD as the base. These pairs include EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF and USD/CAD. Minor Forex Pair is defined as the combination of the world’s most in demand currency. Sometimes they are referred to as major cross pairs.  Exotics are currency pairs that involve the less traded currencies.

Conclusion:

With the help of these definitions regarding currencies, we hope that you are able to easily understand the various concepts on how this trade works in the market.