Let us begin with the instruments that are traded in the forex markets. The reason for this is simple; the basis of currency forex trading is to exchange one currency for another.
The most widely traded pairs are the england Pound and the US Dollar (indicated as GBP/USD), the euros rate and the US Dollar (the EUR/USD pair), the Aussie Dollar and the US Dollar (AUD/USD pair), the USD and the Japanese Yen (USD/JPY pair), and the canadian currency Dollar and the USD (USD/CAD pair). These pairs account for well over 80% of the total volume of the trading in the forex market.
First currency is called the base currency, over which the second one is countered to imply the price of the pair, or commonly referred to as the "cross currency".
Second is therefore called the quote currency and the pair price is recorded in terms of the units of the quote currency required to buy one unit of the base currency.
The bid price is the exchange currency rate at which your forex broker bids to buy the currency at, while the ask price is the rate the forex broker is asking to sell the currency to the forex trader. The bid price will always be less than the ask price and the forex trader will buy at the ask price and sell at the bid price.
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