Forex Trading:  Key Terms for Beginners

Forex markets have different terminologies and nuances for trading. This story defines some of the most common terms.

Currency Pairs

Traders frequently trade currencies by selling one currency and buying another. Forex trading always involves the exchange of currencies in pairs. You could have a EUR/USD pair for U.S. dollars and Euros. You can have similar pairs against the Japanese Yen or the Australian Dollar.

The Major Currency Pairs are the four most heavily traded currency pairs in the forex market. Because of the massive liquidity, you can always trade them with the lowest spread. The four major pairs are EUR/USD, USD/JPY, GBP/USD, USD/CHF. Note that the U.S. dollar is involved in every major pair because it is the world reserve currency.

The Minor Currency Pairs don’t include the U.S. dollar and are also known as cross-currency pairs. For example, EUR/AUD and CHF/JPY. The first currency in the pair is the base currency, and the second currency is the quote currency.

Forex Quotes

Determines the price at which you do the buying and selling.

An example quote is the EUR/USD which is 1.2209. The price indicates that for every Euro you sell, you could buy 1.2209 USD. The 52 week range indicates that in the last year, the price has fluctuated from 1.07 to 1.22. You make a profit when you sell a currency for more than what you paid for.


You might have noticed the forex quote has four places to the right of the decimal. The smallest price change that a given exchange rate can make is the pip. For example, if the EUR/USD moves from 1.2202 to 1.2205, we say the EUR/USD has increased by three pips.

Forex Lot

Forex is traded in lot sizes. Standard Lot = 100,000 units Mini Lot = 10,000 units Micro Lot = 1,000 units A larger lot size involves more risk due to the amount of money involved. If you are starting, always trade in micro-lots.


Forex traders often use leverage to juice up the returns. Since currencies trade in a small range, they want to amplify their gains.

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