Currency Trading Glossary
There are all sorts of currency trading terms you need to understand to profit from forex currency trading. If you are interested in trading currencies, you’d be wise to take some time to familiarize yourself with these terms so you know what you’re doing when you place a trade.
Base Currency – The Base Currency in a standard currency quote is the first currency in the pair. The Base Currency is always set to 1.00. For instance, in the pair EUR/USD, EUR is the Base Currency and USD is the Counter Currency.
Counter Currency – The Counter Currency in a standard currency quote is the second currency in the pair. The Counter Currency quote is how much 1 unit of the Base Currency is worth in the Counter Currency.
Currency Pairs - A currency pair is a set of currencies traded in relationship to one another. A currency pair is made up of a Base Currency and a Counter Currency. The first currency quoted is the Base Currency, and is always set to 1.00. The second currency is the Counter Currency, and that number represents the value of the Base Currency denominated in the Counter Currency. For instance, if EUR/USD is 1.25, that means 1.00 EUR can be bought for 1.25 USD.
Currency Majors – There are seven currencies often called the Majors: EUR (Euro), USD (US Dollar), CHF (Swiss Frank), GBP (British Pound), AUD (Australian Dollar), NZD (New Zealand Dollar), and CAD (Canadian Dollar). Of these, there are four pairs that are often called the Major Pairs: EUR/USD, USD/JPY, USD/CHF, and GBP/USD.
Forex – Forex is short for Foreign Exchange, which is the name given to the entire foreign currency market. Unlike stock, option, or futures markets, there is no central exchange for currency trading. The Forex (sometimes also referred to as FX) is essentially an scattered network of computers, brokers, and traders that operate around the clock from 5:00 PM ET on Sunday to 5:00 PM ET on Friday.
Reserve Currency – This is a nickname for the USD.