In this short article, I will explain you some of the most important terminology used during the forex market. We will look at currency pair, base currency, quote currency and pip.
Every deal in the forex market in the same time includes buying one pair and sell of another. This combination of two pairs is called "currency pair".
The base currency is the first currency in one currency pair. The price of the currency pair shows how much costs the base currency in comparison with the second currency. For ex. if USDCHF costs 0,99351, this means for 1 USD you must pay 0,99351 CHF. By default, in the forex market USD is considered as base currency based on the quote currency. There are also exceptions for GBP, AUD and EUR. If you open long position for EURUSD this means you buy EUR.
When you buy currency pair(open long position), you open long position for the basic currency. And vice verse, when you sell currency pair(open short position), you open short position for the basic currency.
Quote currency is called every currency which is the second one in the currency pair. You may hear it as well as "pip currency". Every unrealized profit or loss must be calculated in the quote currency. If you open shor position in EURUSD, then you buy USD against long position in EUR.
"Pip" is the smallest part of the price of any currency pair. The price of almost any currency pair is expressed as 5 digits. In many cases the decimal point starts immediatelly after the first digit and here is an example EURUSD = 1,4139. In this example 1 pip is equal to the change of the 4th digit after the decimal point. Consequantly, if the quote currency in this pair is USD then 1 pip is equal to 1/100 of the cent.
USDJPY currency pair is an important exception, where 1 pip for USDJPY is equal to whole cent, since 1 USD is equal to 105,18 JPY. Pip sometimes can be met as "point".
The pips are expressed as ratio of base and quote currency.
In a lot of 100 000 we can say that 1 pip is equal to 10 USD. You should bear in mind that this could be changed in some cases.
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