Important Forex Trading Terms

• Spread
  In forex trading and currencies trading spread is a term that is used to describe the difference between the price that you can sell your lot of currency called Bid and the price you can buy currency technically called as Ask. The spread on majors is usually 3 pips under normal market conditions.


• Pips
  A pip in forex trading is the smallest unit by which a cross price quote changes. When trading Forex you will often hear that there is a 3-pip spread when you trade the majors. This spread is revealed when you compare the bid and the ask price, for example EUR/USD is quoted at a bid price of 0.9875 and an ask price of 0.9878. The difference is USD 0.0003, which is equal to 3 “pips”.On a contract or position, the value of a pip can easily be calculated. You know that the EUR/USD is quoted with four decimals, so all you have to do is cancel out the four zeros on the amount you trade and you will have the value of one pip. Thus, on a EUR/USD 100,000 contract, one pip is USD 10 and vice versa.