Introduction To Forex Trading – Key Terms

The Forex market is an international market, with a daily trading volume of trillions of dollars. Forex trading thrives in the fluctuation of the values of given currencies. You buy one currency and then sell it hoping to make a profit.

There are few terms that you should become acquainted with before getting involved with forex trading. Here are a few of them. Other forex market terminologies are discussed at the forex reviews website.

* Ask

Currency must be sold in the foreign exchange market at a certain price known as the ask. More simply put, it is the price tag a trader places on the currency they have presented for sale. The trader is looking for this as a minimum price to sell his currency to any third party.

* Bid

The bid is that which you are willing to pay for a particular currency when you perform an exchange. This usually refers to the highest price possible at which a trader accepts to buy a given currency.

* Spread

The spread represents the difference between the seller with the ask and the buyer with the bid of a particular currency. This is the margin of difference between the ask and the bid on a currency to be bought or sold.

* Pip

The smallest value of measurement used in the forex market is a pip. It refers to the fifth and last digit of a certain currency. The dollar/pound rate could be represented as 1.13527 when stopping at the fifth digit of measurement. If the rate moved by 5 pips it would then add or subtract .00005 from the displayed values. For trading purposes the difference between the Bid and Ask price will usually be 3 forex pips or greater.

* Appreciation

This is the increase in value of the particular currency.

* Base currency

The trader usually only transacts with one currency despite the fact that foreign exchange is based on exchanges involving two different currencies. This is what is known as the base currency. This means that a trader may pay for a euro/dollar exchange with the dollar – and this is his base currency.

* Cross

The cross is the two currencies that a forex trader is making deals based upon. So for example, the cross could be the euro/dollar or pound/dollar.