Forex Glossary

Pip Spread

The pip spread is the difference between the bid and offer prices. The big figure quote is the dealer expression referring to the first few digits of an exchange rate. These digits are often omitted in dealer quotes. For example, a USD/JPY rate might be 117.30/117.35, but would be quoted verbally without the first three digits as '30/35'.

Forex Dealer Member (FDM)

The 'Forex Dealer Member' (FDM) is a term created by the NFA (National Futures Association). In general, Forex Dealer Members (FDMs) are NFA Members who act as counterparties to forex transactions. Any Member of the NFA who qualifies is automatically a Forex Dealer Member because there is no approval requirement and no application form.

Leverage

Leverage is the ratio of the amount used in a transaction to the required security deposit (margin). It is the ability to control large dollar amounts of a security with a comparatively small amount of capital. Leveraging varies dramatically with different brokers, ranging from 10:1 to 100:1. Leverage is frequently referred to as gearing. The formula for calculating leverage is:...

Rollover

A rollover is the process whereby the settlement of an open trade is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies.

Pips

A pip is the smallest unit of price for any foreign currency. Pips are sometimes also called points. Nearly all currency pairs consist of five significant digits and most pairs have the decimal point immediately after the first digit. For example EUR/USD equals 1.2812. In this instance, a single pip equals the smallest change in the fourth decimal place, that is ...

Quote Currency

The quote currency is the second currency in any currency pair. This is frequently called the PIP currency and any unrealized profit or loss is expressed in this currency.

Base Currency

The base currency is the first currency in any currency pair. It shows how much the base currency is worth as measured against the second currency. In the Forex markets, the USD is normally considered the base currency for quotes, meaning that quotes are expressed as a unit of 1 USD per the other currency quoted in the Forex currency ...

Exotic Currencies

Exotic currencies are currency pairs in which one currency is the USD and the other one is a currency from a smaller country. There are approximately 25 exotics that can be traded by the retail Forex participant.

Cross Currency

A cross currency is any pair in which neither currency is the USD. These currency pairs may exhibit erratic price behavior since the Forex trader has initiated two Forex trades in USD. For example, the Forex trader traded the cross currency GBP/JPY. In fact he bought a GBP/USD currency pair and he sold a JPY/USD currency pair. It is obvious ...

Major Currencies and Minor Currencies

The 7 most frequenctly traded currencies are called the major currencies. The major currencies are: USD - US Dollar EUR - Euro JPY - Japanese Yen GBP - Great Britain Pound CHF - Swiss Francs CAD - Canadian Dollar AUD - Australian Dollar All other currencies are referred to as the minor currencies. The most frequently traded minors are: NZD - New Zealand Dollar ZAR - South African Rand SGD - ...