Tuesday, 13 March 2018
4 Basic Forex Terms You Should Know
Labels:
this is interesting
1 -
Margin
Margin, also known as margin trading, refers
to the practice of using funds from a Forex broker to trade. In other words,
the broker is loaning you money to trade a larger sum without you necessarily
having to deposit that amount in your trading account. This common practice
increases considerably potential gains, but also exposes traders to massive
losses.
2 -
Leverage
Leverage is the ratio of the capital used for
a trade to the required deposit amount (margin). In other words, when you see
200:1, it means a trader should deposit $1 to trade with $200. Leveraging
positions is a very common practice among Forex traders, who typically operate
with small amounts. Leverage enables them to widen their profits, but also
their loses, turning this financial tool into a dangerous two-way sword.
3 -
Base and Quote Currency
Base currency: the first currency displayed in
a currency pair. For example, if we are analyzing the EUR/USD - the EUR will be
our base currency.
In other words, the base currency refers to
the unit which is converted into another currency. Following the previous
example, 1.0000 EUR equals 1.2000 USD.
Quote currency: it is the second currency seen
in a currency pair, also known as the pip currency. It expresses the rate to
which the base currency is exchanged at a certain time.
4 - Pip
A pip is the smallest unit of a currency. For
example, an EUR/USD pair is usually expressed with five digits. In this case,
0.0001 will be a pip. A different story happens when we look at the Japanese
yen. Then the pip equals to 0.01.
Subscribe to:
Post Comments
(
Atom
)
No comments :
Post a Comment