Basic Definitions In Trading

The currency Rate is the price of the currency of a country quoted in that of another at purchase and sale operations. This price can be set based on the ratio of demand and supply of a certain currency in the free market situation or be strictly regulated by a government's decision or its main financial body, which will usually be the central bank.

The rate, quote or price of a currency is determined by the market itself and is expressed in the following way: the direct quote is the amount of the national currency per unit of the foreign one, while the reverse quote is the amount of the foreign currency per unit of the local one.

Direct Quote:	GBP = 1.7400 USD (i.e., one British pound sterling is sold for 1.74 US dollars.)
	Designation:	GBP/USD = 1.7400
		EUR/USD = 1.2300
Reverse Quote:	USD = 109.50 JPY (i.e., one US dollar is sold for 109.5 Japanese yen.)
	Designation:	USD/JPY = 109.59
		USD/CHF = 1.2550

Cross rates are the ratio between two currencies that is calculated from their rate to a third currency. In the world market dealings, US dollar cross rates are often used as the dollar is not only the main reserve currency but also the transaction currency in most currency operations.

Example: EUR/CHF = ( USD/CHF ) * ( EUR/USD )

A quote offered to the client looks like this: USD/CHF = 1.2550/54. This means that a trader can buy US dollars for Swiss franks at the rate of 1.2554 ( ask or offer price) and sell US dollars for Swiss franks at the rate of 1.2550 ( bid price).

Pip or point is the smallest unit of price. For example, the change of price from 1.4150 to 1.4156 is a six pips.

Spread is the difference between the bid and offer (ask) prices: 1.4160 - 1.4150 = 10 pips. A standard bank spread is 3 to 5 pips.

Lot, trade in the FOREX market is carried out using lots. When opening a position, you can choose the desired number of lots between 1 and 10. One lot is equal to US$100,000. The collateral for each lot will be different, ranging from US$500 to 2,000 depending on the chosen leverage

Leverage is a financial tool which enables crediting of speculative operations at a small collateral.