FOREX CURRENCY TERMS

Currency Trading

There are dozens of unique currency pairs that you can trade. In order to fully appreciate this concept, it is important to understand the nature of cash Forex pair symbols.

Base Currency

The base currency in a Forex symbol is the first symbol notated. In the case of EURUSD, the base currency is EUR (euro). This is the currency you are buying or selling. For example, if your trade size is 100,000, you are buying or selling 100,000 Euros against U.S. dollars.

Quote Currency

The quote currency, sometimes called the secondary or terms currency, is the second symbol notated in a Forex symbol. In the case of EURUSD, the quote currency is USD (U.S. dollars). This is the currency price being quoted. For example, if EURUSD is currently quoted at 1.2510 Bid/1.2512 Ask, then you would pay $1.2512 U.S. dollars to buy 1 euro and receive $1.2510 U.S. dollars to sell 1 euro. The realized profit or loss of a trade is always based on the quote currency, and is automatically converted into your native account currency at the end of the session, based on the current conversion rate.

1: USD – Base Currency

Based on a 2% margin requirement, the margin for each dollar-based currency pair, where USD is the base currency (first part) of the symbol, is generally 2%, or $200 for every $10,000 U.S. dollars traded.

In this example, if 100,000 units are traded, since USD is the base currency the trade value equals $100,000 U.S. dollars. So with a 2% initial margin requirement, this trade would require approximately $2,000 of margin.

2: USD – Quote Currency

The margin required for each non-dollar based currency pair, where USD is NOT the base currency (first part) but is the quote currency (second part) of the symbol, is 2% of the value of the base currency times the current price.

In this example, if 100,000 units are traded, the trade value equals 100,000 X 1.33003 = $133,003 U.S. dollars, so with a 2% initial margin requirement, this trade would require approximately $2,660 of margin.

3: Cross-Currency Pairs

The margin required for a non-dollar cross-currency pair is the same calculation as in Example2 above, which is 2% of the value of the base currency times the base currency’s exchange rate to U.S. dollars, or to your native account currency.

In this example, if 100,000 units are traded, the trade value equals 100,000 X 135.161 (EURJPY) = 13,516,100 yen. Then converted back to U.S. Dollars, 13,516,100 / 101.569 (USDJPY) = 133,073 U.S. dollars. So with a 2% initial margin requirement, this trade would require approximately $2,661 of margin.

NOTE: Margin trading involves risks and you should understand those risks before trading:

Consider the Following and Judge for Yourself

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