Basic Forex Concepts

Forex is the buying of one currency and the selling of another concurrently. Typically, the major
currencies—the British Pound (GSP), the Euro (EUR), the Japanese Yen (JPY), and the Swiss
Franc (CHF)—are traded against the US Dollar (USD). Trade pairs in which the USD is not included
are called cross pairs, and occur much less frequently.

The currency pairs are expressed with a base currency as the first part of the pair, followed by the
quote currency. (For example, USD/JPY would be the US dollar as the base against the Japanese
Yen as the quote.)

Accompanying the currency pair is the quota, or bid/ask price. This is expressed in the following
format: EUR/USD: 1.2836 1.2839. The first number in the series represents the bid price, the cost
of selling the Euro against the Dollar, or going ‘short' on the Euro. The second number is the ask
price, the cost of buying the Euro against the dollar, or going ‘long’ on the Euro. The difference
between the bid/ask price is called the pip spread.

A pip is the smallest unit of measure for any currency. In most currencies, this is the fifth digit, or the
fourth after the decimal point; in dollars, each pip is equivalent to one-hundredth of a penny. One
important exception is the Japanese Yen, in which each pip is the second unit after the decimal
point, meaning each pip equals one cent.

Pip Booker
Chairman & Founder
Booker and Cropper Capital Group