If you are just getting into gold trading on the Forex market, you need to familiarize yourself with some of the most important terms. Get started on the right track with this gold trading glossary:
There are eight major currencies on the Forex market: US Dollar (USD), Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Swiss Franc (CHF), Canadian Dollar (CAD), New Zealand Dollar (NZD), and Australian Dollar (AUD). Gold is also traded as a currency, and can be paired with any of these national currencies. Minor currencies are all other currencies that are not listed above, anything from the Polish zloty to the Turkish lira. Less popular currency pairs, like NZD/CHF or CAD/AUD may also be referred to as minor currencies.
Base Currency & Quote Currency
The base currency is the first currency in any pair. On the Forex market, the base currency is often the US dollar. The quote currency (also known as the pip currency) is the second currency listed in any pair. Profits and losses are expressed in the quote currency.
The smallest unit price for any currency is called a pip. When the quote currency USD, a single pip is equivalent to 1/100 of a cent (so 100 pips make a cent, and 10,000 pips make a dollar). A pipette is 1/10 of a pip. Pipettes can be used to express more precise movement.
The bid price is what the market is willing to pay for a currency pair. Accordingly, a trader can also sell the currency at this price. If the XAU/USD pair is listed at 1207.6, you can sell one ounce of gold for 1207.6 US dollars. The gold is never in your possession, you are simply trading on its value in relation to currency.
The ask price (also called the offer price) is the same as the bid price, but opposite. It is the price at which the market is willing to sell a currency pair. You can buy any base currency at this price. If the XAU/USD pairing is quoted at 1208.2, you can buy one US dollar for 0.0008 ounces of gold.
The spread is the difference between the bid price and ask price. It is often expressed in pips. The bid/ask spread also serves as the transaction cost for round-turn trades.
Now that you know these introductory terms, are you ready to get started with gold trading?
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