In foreign exchange trading research, novices always face various problems. Initially, it was a matter of technical expertise. Faced with many obscure technical terms, it is unstoppable, but trading is essential. So, you need to understand these professional terms!
Primary and secondary currencies:
The major currencies are the eight currency pairs frequently traded in the foreign exchange market (U.S. dollar, Euro, Japanese yen, British pound, Swiss franc, Canadian dollar, New Zealand dollar, and Australian dollar). All other currencies are called foreign exchange—secondary currency.
The base currency is the first currency in any currency pair, and the currency quote shows the value of the base currency relative to the second currency. For example, if the USD/CHF exchange rate equals 1.6350, then 1 USD equals 1.6350 CHF. In the foreign exchange market, the U.S. dollar is generally considered the "base" currency of the offer, which means that the request is based on the U.S. dollar and U.S. dollar offers against other currencies. The main exceptions to this rule are the British Pound, Euro, Australian Dollar, and New Zealand Dollar.
The quote currency is the second currency in any currency pair, usually called the PIP currency, and any unrealized gains and losses are expressed in this currency.
The unit of measurement that represents the change in value between two currencies is called a point. This point is the lowest priced unit of any money. Almost all currency pairs consist of five significant figures. The decimal point of most currency pairs is located after the first number; the euro is equal to 1.2538.
To improve the accuracy of quotations, some brokers will quote scores, also known as calculus. For example, if the euro's exchange rate against the U.S. dollar rises from 1.32156 to 1.32158, it will move two micro points.
The purchase price is when a specific currency pair is to be purchased in the foreign exchange market. Traders can sell the base currency at this price, which is displayed on the left side of the quote. For example, in the quotation of GBP/USD 1.8812/15, the purchase price is 1.8812, which means that you sold 1 pound for 1.8812 USD.
The selling price is when a specific currency pair is ready to be sold on the foreign exchange market, where the base currency can be purchased, and the price is displayed on the right side of the quotation. For example, in the source of EUR/USD 1.2812/15, the required price is 1.2815, which means that you can buy 1 Euro with 1.2815 USD. The selling price is also called the selling price.
The bid price difference (spread):
The price difference is the difference between the buying price and the selling price. "Big number quotation" is an expression of dealers, referring to the first few exchange rate figures, which are usually omitted from dealers' quotations. For example, the USD/JPY exchange rate maybe 118.30 / 118.34, but the first three numbers do not add "30/34" in the oral quote.
The main feature of the bid price difference is the transaction cost of recurring transactions. Intermediary fees refer to purchase (or sale) transactions and offset sales (or purchase) transactions of the same scale in the same currency pair. For example, when the exchange rate between the euro and the U.S. dollar is 1.2812 / 15, the transaction cost is 3 points.
The calculation formula of transaction cost is transaction cost (spread) = selling price-buying price.
Cross currency refers to a pair of coins that are not U.S. dollars. These pairs show erratic price behavior because the trader has started two-dollar transactions. For example, long (buy) EUR/GBP is equivalent to buying the EUR/USD currency pair and selling the GBP/USD. Cross-currency couples usually have higher transaction costs.
When you open a new margin account with a foreign exchange broker, you must deposit a minimum amount with the broker. The specific amount varies from broker to broker. The minimum is US$100, and the maximum is US$100,000. Every time a new transaction is executed, a certain percentage of the account balance in the margin account will be used as the initial margin requirement for the new marketing. The amount is based on the relevant currency pair, the current price, and the number of transactions (or batches). The batch size usually refers to the base currency.
For example, suppose you open a mini account, provide a leverage ratio of 200:1 or 0.5% margin, and trade the mini account with mini lots. Assuming that a small transaction is equal to 10,000 US dollars, instead of all providing $ 10000, you only need $ 50 ($10000 x 0.5% = $50).
Leverage ratio is the ratio of the capital used in the transaction to the required margin. It is the ability to control a large number of financial instruments with relatively little money. The leverage ratios of different brokers vary greatly, ranging from 2:1 to 500:1. Although leverage will bring a lot of profits to traders, it also hides a lot of risks. Be careful when operating the lever!