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. It uses the same concept as buying stocks in that you buy low to sell high.

Before getting started in forex trading, you’ll need to be aware of a few terms which we’ll discuss here. Other forex market terminologies are discussed at the forex reviews site.

* Ask

As the name implies, the ask is the asking price of a currency being sold through the foreign exchange market. It is much like any other market where there is a buyer and a seller; the seller has a price he would like to sell his item, and it is up to the buyer to buy it. It refers to the lowest possible price at which the trader will accept to sell the currency.

* Bid

The bid refers to the amount of money you are willing to pay for a certain currency you exchange with another. The highest price a trader will accept to buy a particular currency is what a bid is.

* Spread

A spread refers to the gap between the ask and the bid that the traders present in the trade of a certain currency. This is the margin of difference between the ask and the bid on a currency to be bought or sold.

* Pip

A pip is the smallest value of measurement used in the forex market. It is five digits in and is the last digit of a given currency. Since all currencies are quoted up to this fifth digit, the dollar/pound rate could be 1.14374. Moving the rate any given number of pips will cause these numbers to fluctuate accordingly, with 1 pip being worth .00001. If you are thinking in terms of trading purposes, the Spread will almost always be 3 or more forex pips.

* 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. And it is called the base currency. So while a trader may exchange pound/dollar, his base currency might be the dollar.

* Cross

The cross refers to the pair of currencies that a forex trader deals with. The cross could be pound/dollar, euro/dollar, or any other two currencies in trade.

Filed under: Forex Basics

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