Forex Trading Currency Pairs

Question 1

What is a major currency pair in forex trading?

Accepted Answer

A pair involving USD and one of the other most traded currencies (EUR, GBP, JPY, CHF, CAD, AUD, NZD)

Answer

Major pairs always include USD paired with another highly liquid currency. EUR/USD is the most traded major pair globally.

Question 2

What does the 'bid' price represent in a forex quote?

Accepted Answer

The price at which the market will buy the base currency (the price you can sell at)

Answer

The bid is the price at which the market maker will buy the base currency. As a trader, you sell at the bid and buy at the ask.

Question 3

What is a pip in forex trading?

Accepted Answer

The smallest standard price increment in a currency pair, typically the fourth decimal place

Answer

A pip (percentage in point) is typically the fourth decimal place in most currency pairs (0.0001), except JPY pairs where it is the second decimal place (0.01).

Question 4

What is the spread in forex?

Accepted Answer

The difference between the bid and ask price, representing the cost of the trade

Answer

The spread is the difference between bid and ask prices. It is essentially the broker's commission and represents the immediate cost of entering a trade.

Question 5

What does leverage of 100:1 mean in forex?

Accepted Answer

You can control $100 worth of currency for every $1 of your own capital

Answer

100:1 leverage means controlling $100,000 worth of currency with just $1,000 of your own money. While this amplifies profits, it equally amplifies losses.

Forex Trading Practice Test

Forex Trading Practice Test

Forex Trading Currency Pairs