Discover What Does FOREX Trade Mean

FOREX CONTRACT SIZE -

The standard lot size FOREX currencies are traded in is 100,000 units of the base currency. One unit is equal to one unit of a foreign currency. (ex: 1 unit = 1 US Dollar).

FOREX TRADE PAIRS -

FOREX trade pairs are simply the two foreign currencies that make up the Foreign currency trade.  Let’s assume we’re trading the Eurodollar and the US Dollar FOREX pair (EUR/USD).  The first currency in the pair (EUR/USD) is called the base currency, which is the Euro in this case.  The second currency is called the quoted currency (EUR/USD).  In this example it’s the US Dollar.

FOREX PAIR PRICE/QUOTE -

Like trading other commodities, foreign exchange currencies have a price/quote associated with them that changes throughout the trading day and it will look something like this:
-  EUR/USD   1.2526/2528 – - often shown as EUR/USD   1.2526/28 – - with the latter price showing only the last 2 digits.

(Please realize that these forex currency price/quote numbers are for discussion use, and are not representative of current Currency trading pair trading prices).

The BID/ASK –

The price/quote of our FOREX pair example – EUR/USD   1.2526/28 – is referred to as the bid/ask.  So, if selling the EUR and buying the USD, you would sell (1) EUR, and this would equal to simultaneously buying 1.2526 US Dollars.

Or, if you were buying the EUR and selling the USD, you reverse the equation a bit….and the USD ask price of 1.2528 would equal (1) Euro.

PIPs -

So what the heck is a PIP? They are a key aspect of how Fx pairs are priced/quoted, and also in calculating a currency trades’ gain or loss.

In the above section, we talked about Foreign exchange currency pairs. When you look at a foreign exchange pairs’ price/quote, you will see it quoted out as far as four digits. As an illustration, have a look at the Japanese Yen – it only goes out to 2 decimal points or digits: 123.17 – with the PIP being the “7“.

In this example (EUR/USD = 1.2526/1.2528 – the PIP in each price/quote is the last digit (6 & 8  in the price/quote number.  In our instance here, you’ll note the price/quote difference between the base currency and the second or quoted Forex trading currency.

This is what’s referred to as the PIP spread.and in our example it is a 2 PIP (= 0.0002) spread.  Foreign currency brokers profit on the PIP spread variance between the bid/ask on every trade they conduct for you.

This can be mystifying at first. But the more you learn about Fx trading, the clearer this will become.

Don’t sweat it. Many Forex trading traders when they come into this arena, take awhile to get their arms around all these different Fx trading components.