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It is very important to understand money jargon in FX trading. The world of foreign currency exchange has a unique language of its own. Prices are quoted two ways, meaning that when one trader talks price with another, they state their respective prices in terms of what exchange rate they will pay to buy it and what they will take when selling it. Bid and ask price differences, or spreads, usually are stated in pips or hundredths of a currency units. Spreads normally are no more than ten pips.
Pips are the smallest incremental price movement permitted in the currency market. Although most transactions deal in thousands or millions of dollars, yen, Euros or other currencies, and a one-cent spread can equal thousands of dollars, most currency price quotes nevertheless are extended out to four decimals. Many times, traders quote only the last two digits or the small numbers, because the incremental changes are so small only the last two digits matter. As a trader in FX trading you need to think in terms of the host currency when receiving a quote for direct exchange, which would be an exchange based on the value of the host country’s currency.
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