Q: What is a currency pair?

A: Foreign currencies are traded in pairs, simply known as the currency pair. Currency pairs are written in currency codes. It is the quotation of one currency against another currency. Example, the pair of EURO against the US Dollar, is written as: EUR/USD. As you can see, the currency pair is composed of two: one is the "base currency" and the other is the "counter currency".

Q: What is "base currency" and "counter currency"?

A: "Base currency" is the currency being quoted in relation to the "counter currency". In the pair EUR/USD, EUR is the "base currency" and USD is the "counter currency". Base currency is also called the "transaction currency". And "counter currency" is also called the "quote currency".

Q: What does "currency quotation" mean?

A: Currency quotation is the price (or rate) at which you are going to buy or sell your currency pair. Example, the quotation EUR/USD 1.2500 means that 1 EUR is exchanged for 1.2500 USD. If the quote changes from EUR/USD 1.2500 to 1.2510, then it means that the EURO has increased its value. (Maybe because the USD buying power has weakened, or the EUR has strengthened, or both).

Q: What are the most traded currencies in the world?

A: The most traded currencies in the world are called the "Majors". They are:

US Dolar (USD)

Euro (EUR)

JAPANESE YEN (JPY)

POUND STERLING (GBP)

AUSTRALIAN DOLLAR (AUD)

SWISS FRANC (CHF)

CANADIAN DOLLAR (CAD)

The other most traded currencies are:

HONG KONG DOLLAR (HKD)

SWEDISH KRONA (SEK)

NEW ZEALAND DOLLAR (NZD)

SOUTH KOREAN WON (KRW)

SINGAPORE DOLLAR (SGD)

NORWEGIAN KRONE (NOK)

MEXICAN PESO (MXN)

INDIAN RUPEE (INR)

Q: What are the currency pair "nicknames"?

A: Currency pairs are also known by their "nicknames". In everyday use, traders have come to call certain currency pairs with nicknames, such as:

GBP/USD known as the "Cable"

EUR/USD known as "Fiber"

EUR/GBP known as "Chunnel"

USD/CAD known as "Loonie" or "The Funds"

AUD/USD known as "Matie" or "Aussie"

GBP/JPY known as "Geppie"

NZD/USD known as "Kiwi"

Nicknames vary from trading centers to another.

Q: What are "cross pairs"?

A: Currency pairs that do not involve the US Dollar are called "cross currency pairs". Example: GBP/JPY. While pairs that involve the EURO is usually called the "EURO crosses". Example: EUR/GBP.

Q: What is a forex spread?

A: The amount of pips between the bidding price and the asking price is called the spread. The spread is what forex brokers use to make money on every forex trade placed through their network. For example, the forex broker may be paying a price of 1.3600 for buying or selling. The broker will then allow you to buy the currency for 1.3601 or sell it for 1.3599. The spread always stays around the actual price that the forex broker is paying. So when you buy, you get one end of the spread and when you sell you get the other end of it, and vice versa. By the time you close your trade, you will have always paid the spread.

Q: What is a PIP?

A: PIP stands for Percentage In Point. It is equal to 1/100 of 1 percent, or .0001. In FOREX, currency prices are typically quoted to the fourth decimal (except the Japanese Yen). For example, if the EUR/USD pair is trading at the exchange rate of 1 EUR = 1.3010 USD, and the exchange rate moves up to 1 EUR = 1.3020 USD, it has moved up by 10 pips. And, if the EUR/USD is trading at 1 EUR = 1.3010 USD and has gone up to 1.3110 USD, it has increased by 100 pips.

Q: What is "stop loss"?

A: A stop loss is an order that closes out your existing trade in order to limit losses. Stop losses are literally used to stop the loss of your trading capital. When your stop loss order is hit on a trade, the trade is closed at the current market value.

Q: What is a "mini lot"?

A: A mini lot is a lot of 10,000 units of the base currency. It is called a mini lot because it is only 1/10th of the size of a 100,000 unit standard lot.

If you are trading on an account based in US Dollars, a mini lot would be a trade worth $10,000 of USD.

Q: What is "carry trading"?

Carry trading is one of the most simple strategies for currency trading. A carry trade is when you buy a high interest currency against a low interest currency. For each day that you hold that trade, your broker will pay you the interest difference between the two currencies, as long as you are trading in the interest positive direction. Also, it refers to investors borrowing low-yielding currencies and lending (investing in) high-yielding currencies.

Q: What is a "leverage"?

A: Generally, "leverage" refers to any technique which aims to multiply gains (or losses). In FOREX, "leverage" gives traders the ability to make larger trades with smaller amount of money.

Q: What is a "FOREX Chart"?

A: FOREX Chart is a chart that shows foreign exchange rates or prices. There are three types of FOREX Charts: 1) candle stick charts, 2) line charts and 3) bar charts. Traders use charts to analyze price patterns and other data in a particular period of time.

Q: What are the differences between the 3 types of FOREX Charts?

A: The differences are:

1) Line Chart: Line chart shows a series of data points which is connected together in a line. Commonly used data are closing prices as they are the most important feed to see in forex. Line chart is a basic type of chart used in forex and other financial studies.

2) Bar Chart: Bar charts provide more detailed information compared to Line Chart. It shows not only closing price, but consists of opening price, highest price, and lowest price during a time period (timeframe). For example if you use 5 minutes chart, it means every price movements within 5 minutes period are represented by 1 single bar.

3) Candle Sticks Chart: Candlesticks are usually composed of the body (white/green or black/red), an upper and a lower shadow (wick). The wick indicates the highest and lowest currency traded prices. Colors of the body correspond to bullish or bearish condition. If the body is white (or green), it means opening price is lower than closing price (the price is moving uptrend/bullish). In the other hand, if the body is black (or red), it means opening price is higher than closing price (the price is moving downtrend/bearish).

Q: Why FOREX Charts are important?

A: FOREX Charts help traders become profitable and successful. The trader's ability to interpret and analyze data from FOREX charts is essential.

Q: What are the commonly used type of FOREX Charts?

A: The most commonly used FOREX charts are the Candle Stick Chart and Bar Chart.

Q: What time can I trade FOREX?

A: With only a short break on the weekend, FOREX trading is 24 hours a day. With the global use of high speed internet connections, the FOREX market is an almost constant activity center.

Q: What does the word "bull" mean?

A: Generally in finance, "bull" means a trader who believes that the market or prices will rise. It may also refer to a market trend that is strong and going up. (As in "bull market").

Q: What does the word "bear" mean?

A: "Bear" means a trader who believes that the market or prices will go down. It may also refer to a market trend that is weak and going down. (As in "bear market").