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A 'currency pair' depicts a quotation of two different currencies. The first currency in the pair is the 'base currency'. The second currency in the pair is labelled 'quote currency' or 'counter currency'. Such a quotation depicts how many units of the counter currency are needed to buy one unit of the base currency.
For example the quotation EUR/USD 1.2500 means that one euro is exchanged for 1.25 US dollar. If the quote moves from EUR/USD 1.2500 to EUR/USD 1.2510, the euro is getting stronger and the dollar weaker. On the other hand if the EUR/USD quote moves from 1.2500 to 1.2490 the euro is getting weaker while the dollar is getting stronger.

Contents

Majors

Cross Rates

Pips

Pip Value

Spread

Accounting Units

Majors

'Majors' are the most liquid and widely traded currency pairs in the world. Trades involving majors make up about 90% of total Forex trading.
The Majors are: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD and USD/CAD.
GBP/USD is the only currency pair with its own name. It is known as "Cable", which has its origins from the days when a cable under the Atlantic synchronized the GBP/USD rate between the London and New York markets. But there are also lots of abbreviations for other currency pairs such as:

AUD/USD ... "Aussie"

EUR/USD ... "Euro"

GBP/JPY ... "Geppy"

GBP/USD ... "Cable"

NZD/USD ... "Kiwi"

USD/CAD ... "Loonie"

USD/CHF ... "Swissy"

USD/JPY ... "Gopher"

Cross Rates

'Cross rate' is a currency pair that does not include USD, such as GBP/JPY. Pairs that involve the EUR are called 'euro crosses', such as EUR/GBP. All other currency pairs (those that don't involve USD or EUR) are generally referred to as 'cross rates'.

Pips

A 'Pip' is the smallest number in a quotation of a currency. For example if the quotation of EUR/USD is 1.2025, a pip is represented by EUR 0.0001. EUR/GBP has half pips, in that it is quoted to a fifth decimal place which can only be 0 or 5. This is because one pip in EUR/GBP is equal to four pips in its predecessor, GBP/DEM, and one pip in EUR/GBP would be too large an increment.

Pip Value

In order to calculate the pip value or how much is one pip, you have to know some additional information such as: trading size, leverage used, and of course the actual rate of the pair for which you want to calculate the pip value. For example in case of US Dollar, with leverage of 1:100 and trading volume of 1 lot, the minimum fluctuation point will be 10 USD. Other calculations for other pairs can be viewed here.

Spread

The quotation of a currency pair usually consists of two prices. The lower price ('bid') is the price at which a market maker or a brokerage in general is willing to buy the first currency of a pair. The higher price ('offer or ask') is the price at which a brokerage is willing to sell the first currency of a pair. The 'spread' is the difference between the two prices. For example if the quotation of EUR/USD is 1.3607/1.3609, then the spread is EUR 0.0002 (or '2' pips). The more popular pair is the smaller the differences or spreads. Different brokerage firms have different conditions inc. spreads, for example spread list of over 55 currency pairs of North Finance brokerage firm.

Accounting Units

★ Currency