There are many things that you must know

Common terminology

Important Forex Terminology

Each currency pair has two prices, the first is the bid price and the second is the ask price.

Ask price: It is the price at which the purchase is executed.

Bid price: It is the price at which the sale is executed.

What is a lot?

Trading in the currency market takes place through specific quantities of contracts (lots). It indicates the number of units that you want to buy from the currency pair and there are three different types of contract quantities, namely:

Standard lot contract

Equals 100 thousand units of the base currency.

Mini lot

Equals 10,000 units of the base currency.

Micro lot

Equals 1,000 units of the base currency.

What is a pip?

It is the smallest movement in the price of a currency pair and is represented by the last decimal number in the price.

Example

If the EUR / USD exchange rate rises from 1.2360 to 1.2361, this means that the pair moved 1 pip (1 pip)

How is the pip value calculated?

The point is calculated by the following equation

Point Value = (0.0001 ÷ Exchange Rate) x Contract Size

Example

If the price of the dollar against the Canadian dollar

Point Value = (Standard Lot \$ 100,000) x (0.0001 ÷ 1.2240) = \$ 8.16

Another example

If the price of the dollar against the euro

EUR / USD = 1.2560

Point Value = (Lot Standard 100,000 euros) x (0.0001 ÷ 1.2560) = 7.69 euros

To convert euros into dollars

1.2560 x 7.96 = \$ 10