Part IV. Spread, Lots, Leverage/margin and profit/loss – joining all together… Commander in Pips: We have discussed many important things, such as Bid/Ask Spread, Leverage, margin, Base and Quote currencies, pips, pip value, profit, loss, etc. So, I think you need to reinforce this knowledge – these items will be crucial for further moving through our FX School. Pipruit: Well, Commander that was very interesting to solve different tasks previously, so I’m ready. BASE AND QUOTE CURRENCIES Commander in Pips: Ok, tell me what you know about Base currency. Pipruit: Base currency is a first placed currency in any pair and it stands before slash “/”. For example, NZD/JPY – NZD is a Base currency. Also it shows what currency will be traded, if I intend to make the trade. Specifically the fact that NZD stands at first place (before “/”) tells that I will Buy or Sell particularly NZD. Commander in Pips: That’s right, and what does Quote currency tell us? Pipruit: Let’s assume that we are talking about the same NZD/JPY pair and we’ve said that first placed currency shows what particular currency I will trade. That’s true. The Quote currency, in turn, stands at second place, i.e. after slash “/” and tells us for what currency I will Buy or Sell in exchange for NZD. In our case this is JPY. In other words, Base currency takes function of some kind of product and Quote currency - of money to exchange for that product. When you buying some goods in store (Base currency), you should to pay for it (Quote currency.) If you would like to sell some Item on EBAY (Base currency), you will get cash for your items (Quote currency). Commander in Pips: Very well. But you missed some important qualities of Quote currency… Pipruit: Oh, yes, Quote currency determines the results of the trade. It means that whatever profit or loss you get, it will be shown in terms of quote currency (although it will be automatically converted by the Broker into the currency that your trading account has been initially set up to use). For instance, if we will get profit from a rise of the NZD/JPY rate from 63.00 to 64.00 – this profit will be in terms of JPY and for 100 000 units of Base currency it will be 1000 Yen.