Forex Definition
Forex trading means trading currencies in the foreign exchange market. Currencies trade in pairs, such as EUR/USD, that denote the value of one currency relative to the other. You place your trades based on the expectation of price fluctuation for the pair. Price changes are measured in pips and trades are placed in lots ( standard lot= 100,000 units of a currency.)
Forex trading allows for a lot of leverage and can be risky due to sudden price swings.
Notes: Forex is also known as FX, Foreign exchange, Currencies trading.
What is a pip?
Currency prices typically move in such tiny increments that they are quoted in pips or percentage in point (price interest point). In most cases, a pip refers to the fourth decimal point of a price that is equal to 1/100th of 1%.
What is Spread?
The difference between the buying price and selling price of a currency pair is called the spread. It’s also known as the ‘buy-sell spread’ or ‘bid-ask spread’.
What is leverage?
Leverage is a borrowed capital to increase the potential returns. The Forex leverage size usually exceeds the invested capital for several times.
For example:
- If your leverage is 1:100, it means for every $1, your broker gives you $100. So if your trading balance is $100, you can trade $10,000 = ($100*100).
- If the maximum leverage ratio is 1:1000, having $100 in the account, the trader can make transactions for purchase/sale of foreign currency or other financial instruments worth 1,000 times more than their own funds, that is, $100,000. In case of luck, the trader’s profit will grow proportionally to the leverage.
The higher the leverage you choose to trade, the higher the risk you take.
What is margin?
Margin is a key part of leveraged trading. It is the term used to describe the initial deposit you put up to open and maintain a leveraged position. When you are trading forex with margin, remember that your margin requirement will change depending on your broker, and how large your trade size is.
What is Stop out?
Stop out Is a point at which open positions are closed automatically due to reduction in account margin to the level that can no longer sustain the positions.
What is the difference between balance and equity in Forex?
What is the difference between forex balance and forex equity? The forex balance is all the money in your forex account.Equity is the balance plus/minus any profit/losses from open positions. If you don’t have any positions open, your equity is equal to your balance.
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