Interbank (bank-to-bank) Rate-This is the wholesale exchange rate that banks use between themselves. The first currency in a currency pair is called the base currency, while the second is called the quote currency. A pip is sometimes called a point.Ĭurrency Pair-A quote of the relative value of one currency unit against another currency unit. For example, 3 pips are the difference between the currency quote of EUR/USD 1.2800/1.2803. Pip-A pip is the smallest unit of value in a bid-ask spread. Some call this profit a fee or commission. As financial middlemen, most will set exchange rates of their own at bid-ask spreads that return a percentage as profit for doing business. Real-world currency exchanges with brokers, banks, or businesses typically do not follow precise market rates. Theoretically, buyers want the smallest possible spreads, while sellers want the highest spreads.

The forex is able to facilitate the receipt or payment of units of currency that are equal in value.īid Price-The price that a buyer is willing to pay for a unit of currency.Īsk Price-The price that a seller is willing to accept for a unit of currency.īid-Ask Spread-The difference between the bid and ask price.

This market is a necessity because one unit of currency very rarely equals exactly one unit of another currency. Below is a short list of some of the important terms pertinent to foreign currency exchange.Įxchange Rate-The value of one currency expressed in terms of another.įorex-The foreign exchange market (forex) is a global, decentralized, over-the-counter market for the trading of currencies and is the largest market in the world (followed by the credit market).

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