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The currency trading needs certain thing to be taken care of so that you can perform trading in an effective manner and gain profit accordingly. You should have idea about currency codes, major minor and commodity currencies, pips and pipettes, standard, mini and micro contracts, long/short and bid/ask. All these are the basic terminologies you should be familiar with so that you can really make a great difference in trading in the forex market.
How are the Currency Pairs denoted in Currency Trading?
Before you know about the currency pairs, you need to know the notations used for each currency. There is ISO code available for denoting each and every currency. This universal coding is of three letters and this coding is made used in the forex market for denoting the various currencies. A currency pair is separated using a / and the code to the left of / is called the base currency and the other one is called the counter or the quote currency. In a transaction both selling and buying is done simultaneously.
How do Major, Minor and Commodity Currencies Differ?
Major currencies are the top 7 liquid currencies in the forex market i.e. the currencies that are traded mostly in the market. The currencies except the major currencies are called minor currencies that are the ones with less rate of trading. The commodity currencies are those whose countries depend mainly upon the export of commodities as their major income. Major currency pairs are the ones that include USD as one among the pair and the pairs without USD are called cross currency pairs.
What is long/short and bid/ask?
When you are buying, it means that you are buying the base currency and selling the quote currency. For a buyer, the value of base currency needs to be raised, which is called long. In case of selling, you are selling the base currency and buying the quote currency. For a seller the value of base currency need to fall, which is called short. Bid is the best price that is available in the market with which you may sell the base currency exchanging the quote currency. Ask is the best cost available in the market with which you may buy the base currency exchanging the quote currency.
What does a Pips and Pipettes Mean?
Pip is a measurement used to find the variation of value between a pair of currencies. The currency pairs that are beyond the standard “4 and 2” to “5 and 3” decimal places are called pipettes. Pipettes are also called as quoting fractional PIPS.
Define Standard, Mini and Micro Contract
A standard contract is a trade that is $100,000 in size and which has US dollars as the base currency. Mini contracts are the kinds of currency trading with initial margin of $100. Micro contracts are the ones in which the initial margin is $10. Both micro and mini contracts are formulated specially for traders with small accounts to perform currency trading.