Currency Trading Terminology

Currency Trading Terminology

When you first start out in this business, it may seem like you're hearing a foreign language, but currency trading terminology is quite unique. I'm going to take the time and break down as many of the common terms, so you know what they mean.

* Base Currency: When you see currency quoted, you're going to see it like USD/CAD. Basically it is the value of a currency with respect to another. In this case, the base currency would be USD.
* Quote Currency: In the same scenario as above the quote currency would be CAD or the second currency listed.
* Long Buy: A long buy is when you plan on buying the base currency and selling the quote currency.
* Short Buy: A short buy is when you plan on selling the base currency and buying the quote currency.
* Bid: The "bid" is the price a dealer is willing to buy the base currency, in exchange for the quote currency.
* Ask: The "ask" is the price the dealer is willing to sell the base currency in exchange for the quote currency.
* Pips: Pips are the smallest decimal point a currency has. If the price is USD/CAD = 1.0001, than the pip would be 1.
* Leverage: Leverage typically refers to a type of an account a broker gives you. Basically instead of putting money into trade, you put a deposit into your broker and you're allow to trade 10-100 times more money (which the broker owns). This allows you to make much more profitable trades, since you can trade more. Both you and the broker make more money. If you start losing, the broker will cut you off when your original deposit is lost.

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