Some of this jargon, we have already covered the terms, but it never hurts to do a little review.
Major and Minor Currencies
The eight most frequently traded currencies (USD, EUR, JPY, GBP, CHF, CAD, NZD, and AUD). These frequently traded currencies are called the major currencies or the “majors,” and they are the most liquid and the sexiest.
All other currencies are referred to as minor currencies.
The base currency is the first currency in any currency pair. The currency quote shows how much the base currency is worth as measured against the second currency.
For example, if the USD/CHF rate equals 1.6350, then one USD is worth CHF 1.6350.
In the forex market, the U.S. dollar is normally considered the “base” currency for quotes, meaning that quotes are expressed as a unit of 1 USD per the other currency quoted in the pair.
The primary exceptions to the USD being the base currency rule are the British pound, the euro, and the Australian and New Zealand dollar.
The quote currency is the second currency in any currency pair. This is frequently called the pip currency and any unrealized profit or loss is expressed in this currency.
A pip is the smallest unit of price for any currency.
Nearly all currency pairs consist of five significant digits. Most pairs have the decimal point immediately after the first digit, that is, EUR/USD equals 1.2538.
In this example, a single pip equals the smallest change in the fourth decimal place, that is, 0.0001.
If the quote currency in any pair is USD, then one pip always equals 1/100 of a cent.
Notable exceptions to the five significant digits quotes are pairs that include the Japanese yen where a pip equals 0.01.
A pipette is one-tenth of a pip. Many brokers quote fractional pips, or pipettes, for added precision in quoting rates.
For example, if EUR/USD moved from 1.32156 to 1.32158, it moved 2 pipettes.