An Introduction To Forex Part 2 – More In-depth Terminology


Forex Presentation Part #2


  • Types of Currency Pair Quotes

There are 3 types of currency pair quotes.

These include Direct, Indirect and Cross Currency Quotes.


  • Direct Currency Quote vs. Indirect Currency Quote

A direct currency quote is a currency pair where the domestic currency is the quoted currency.

EUR/USD – EUR = domestic currency & USD = foreign currency


An indirect quote, is a currency pair where the domestic currency is the base currency…in other words…the inverse to a direct quote.

USD/EUR – USD = domestic currency & EUR = foreign currency


  • Cross Currency Quote

The third type of quote is the cross currency quote.

When a currency quote is given without the USD as one of its currencies, this is called a cross currency.


The cross currency pairs that are traded the most are EUR/GBP, EUR/CHF and EUR/JPY.

  • When trading a currency pair, there is a bid price (buy) and an ask price (sell), in relation to the base currency.Example:EUR/USD –4000/05Bid = 1.4000
    Ask = 1.4005



Bid & Ask


  • The spread is the difference between the bid and ask price.In the previous example EUR/USD –4000/05
    The spread equals 0.0005 or 5 pips



Spreads & Pips


  • Pips or points are the incremental changes in a forex quote.5000 to 1.5001 = 1 pipWith major currency pairs such as EUR/USD, GBP/USD and USD/CAD – 1 pip would be equal to 0.0001.If you look at USD/JPY, you will notice it has only two decimal places 0.01; in cases like this the pip simply represents the last decimal place.




  • Brokers

It’s time to open a demo account and start playing in your environment!

Now that you have a basic understanding of terminology in the forex market, it’s time to look into which broker you will choose.

I am not talking about a live account, simply a demo…or in my case…multiple brokers.

It is free to setup a demo account with the brokers of your choice and most usually fund with 10,000USD of play money


  • Choosing Your Broker

Each broker has advantages & disadvantages in choosing them.


Things you will want to ask yourself in choosing a broker are:

  • Are they regulated?
  • Which country is the broker incorporated?
  • Does the broker have live phone support 24 hours per day?
  • Brokers I Prefer

I have multiple forex accounts with different brokers.


After a long time demoing, checking reviews, and utilizing the platforms offered, I decided to go with Oanda & Tradersway.

Oanda is my all time favorite, however their margin is 50:1, while Tradersway allows for a 500:1 margin.  This was a nice feature when I had a smaller account size, so that I could build up my account and transfer my funds over to Oanda.


  • Margin & Leverage

When a trader opens a position, they are required to put up a fraction of that position’s value ‘in good faith’.

This is referred to as being “leveraged” and the amount that is required to be put down is the “margin”.

Example: A 50:1 leverage ratio yields a margin percentage of 1/50 = 0.02 = 2%.



Alright, now it is time for some homework….

I’d like you to pick 1 or 2 brokers and setup demo accounts with them.

Download their MT4 software and in the next lesson we will get into how to use MT4


  • RECAP… Questions


What are the 3 types of currency quotes?

  • 1

Direct, Indirect and Cross Currency


  • 2

The Cross Currency Quote is for what type of quote?

Any quote that does not include the USD


  • 3

The Bid & Ask portion of a quote refers to what?

The bid is the buy and the ask is the sell in relation to the base currency


  • 4

What is a Spread?

The difference between the bid and ask price

  • Continued…


What is a pip?

  • 1

A pip also referred to as a point, is the incremental change in a forex quote


  • 2

What should you look for in a broker?

Regulation, location, live phone support 24 hour


  • 3

Why do I suggest choosing a broker with larger margin?

If you have a smaller account, choosing a broker with a larger margin can help increase your account size, then withdraw the funds and then transfer into a regulated US broker (if you are a US citizen)


  • 4

What homework do I expect to be complete for the next lesson?

I expect you to have 1-2 demo accounts setup with different brokers that you have researched.  To install MT4 on your computer and be ready to learn!

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