Trading Glossary And Terms !
When a currency is quoted, it is done in regard to another currency, so that the value of one is reflected through the value of another. For instance, the foreign exchange quote for U.S. Dollar and Japanese Yen (JPY) will look like this:
The first currency is the base currency and the second is the quote currency.
When trading currencies there is a bid price (buy) and ask price (sell). When buying a currency pair (going long) the ask price represents the amount of quoted currency to be paid in order to buy one unit of the base currency.
The bid price is used when selling a currency pair (going short) and represents the price the market will have to pay for the quoted currency for one unit of the base currency.
EUR/USD is quoted at 1.5034/1.5037, where 1.5034 is the bid price and 1.5037 is the ask price. If you were to sell the quoted currency, you would receive 1.5034 U.S. dollars per 1 Euro.
Spread is the difference between the bid and the ask price. For instance, in EUR/USD 1.5034/1.5037 the spread is 3 pips.
Pip represents the smallest unit a price can move in any currency quote. The exact value of an individual pip depends on the currency being traded.
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