These are the forex trading terms which every trader needs to know before he or she even starts the first trade. Quite simply, if you do not know them, then the forex trading game may not be suitable for you. Why? Because they are the essentials!

1. Currency Pairs

Every transaction involves a pair of currencies since a trade is basically the selling of one currency and buying of the other.

2. Major and Minor Currencies

There are 7 major currencies traded online. They are USD, EUR, JPY, GBP, CHF, CAD and AUD. The rest are all minor currencies. Amongst these, some of the more frequently traded ones are the South African Rand (ZAR), the Singapore Dollar (SGD) and New Zealand Dollar (NZD).

3. Base Currency

The base currency is the first currency in the pair as a measure of its value against the second currency. For example, a GBP/USD = 1.7100 means that 1 GBP is worth 1.7100 USD.

4. Quote Currency

The quote currency is the second currency in the pair. Any profit or loss is a measure of this currency.

5. Cross Currency

A cross currency is a pair which neither of them is the USD. These pairs often experience intricate price movements because each trade actually involves the buying and selling of 2 different currency pairs. For instance, when buying a EUR/GBP, you are actually buying a EUR/USD pair and at the same time selling a GBP/USD pair. The transaction costs are often higher for such trades.

6. Pips

What is a pip? 1 pip is the smallest unit of price for any foreign currency. Most currency pairs consist of 5 digits and the pip represents the smallest change in the fourth decimal place, ie 0.0001.

These are the core forex trading terms that all professional forex traders should get familiar with. Since each trade cannot depart from them, it does make sense to find out more.