Natural Freedom

Basic Forex Terms



What is a pip?

A pip, short for point in percentage, represents a tiny measure of the change in a currency pair in the forex market. It can be measured in terms of the quote or in terms of the underlying currency. A pip is a standardized unit and is the smallest amount by which a currency quote can change. It is usually $0.0001 for U.S.-dollar related currency pairs, which is more commonly referred to as 1/100th of 1%, or one basis point.

What is leverage?

Leverage involves borrowing a certain amount of the money needed to invest in something. In the case of forex, money is usually borrowed from a broker. Forex trading does offer high leverage in the sense that for an initial margin requirement, a trader can build up—and control—a huge amount of money. When opening a real account, understand the higher the leverage, the more the broker is covering for you.

What is a lot size?

A standard lot is the equivalent of 100,000 units of the base currency in a forex trade. A standard lot is similar to trade size. ... Historically, spot forex has only been traded in particular lots of 100, 1,000, 10,000 or 100,000 units. More recently, however, non-standard lot sizes are also available to forex traders.




What are currency pairs?

A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. ... Currency pairs compare the value of one currency to another—the base currency (or the first one) versus the second, or the quote currency.

What are the major currency pairs?

The most traded pairs of currencies in the world are called the Majors. They constitute the largest share of the foreign exchange market, about 85%, and therefore they exhibit high market liquidity.

The Majors are: EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, NZD/USD and USD/CAD.

The top 5 most traded currencies in the world are:

• US Dollar (USD)

• Euro (EUR)

• Japanese Yen (JPY)

• Great British Pound (GBP)

• Australian Dollar (AUD)

What is a broker?

Forex brokers are firms that provide traders with access to a platform that allows them to buy and sell foreign currencies. Transactions in this market are always between a pair of two different currencies, so forex traders either buy or sell the particular pair they want to trade.