In this copy, I’ll be breaking down the various terms used in Forex Trading.You can spend time on this one and enjoy the learning process.
What is bid/ask given by the brokerage ?
Bid is the price at which the dealer will buy the currency pair and is the price at which the trader will sell the currency pair.
Ask is the price at which the dealer will sell/short the currency pair and is the price at which the trader will buy/long the currency pair.
The difference between the bid and ask price known as bidask spread is the profit the dealer makes on the pair.
What does squaring off mean?
Squaring off isa trading style used by investors/traders mostly in day trading, in which a trader buys or sells a particular quantity of an asset (mostly stocks) and later in the day reverses the transaction, in the hope of earning a profit (price difference net of broker charges and tax).
What does depth of market (DOM) mean?
Market depth refers to the market liquidity for a security based on the number of standing orders to buy (bids) and sell (offers) at various price levels.In addition to price levels, market depth considers the order size, or volume, at each price level.The greater the market depth, the less likely that large trades will greatly impact a security’s price.
What is a pip and pipette?
Pip is the fourth decimal point however currency pairs that involve the Japanese yen have a slightly different definition of pips, namely, a pip in these pairs is located at the second decimal place.
Pipette is the fifth decimal point in a exchange rate quote and the third decimal place in an exchange rate for pairs that do involve the Japanese yen.
What is stop loss and take profit in forex trading context?
A stop loss (SL) isa price limit entered by a trader. When the price limit is reached the open position will close to prevent further losses. A take profit (TP) works in a similar way – it automatically closes a position once a profit target is reached to lock in profits.
What is limit order?
A limit order is a type oforderto purchase or sell a security at a specified price or better. For buy limit orders, the order will be executed only at the limit price or a lower one, while for sell limit orders, the order will be executed only at the limit price or a higher one. This stipulation allows traders to better control the prices they trade.
What is leverage and margin in forex trading?
Leverage trading enables you to open large deals with a relatively small investment, thus maximizing your trading power, but also your risk. Why? Because when you use high leverage, both successful and unsuccessful deals are, in simple terms, amplified.
Here’s an example: Let’s say you invest $100 in a popularcurrency pair: EUR/USD. With a maximum leverage of 400:1, you can open a deal that is worth 400 times your initial investment, which is $40,000.
Understanding margin
Now that we understand leverage, let’s look at the other side of the equation: Margin, meaning the funds you need to have in your account in order to open a specific deal. Margin both enables you to open large deals with a small investment and acts as collateral to cover any potential losses. In the previous example, we can reverse the same statement: In order to open a $40,000 deal, you need a 0.25% margin, which is $100.
Different brokers require different margins for different instruments – depending on volatility, as well as other factors. Here is a simple chart that offers some popular examples for required margins – and what it means in terms of maximum leverage.
What Is a Margin Call?
A margin calloccurs when the value of an investor’smargin accountfalls below the broker’s required amount. An investor’s margin account contains securities bought with borrowed money (typically a combination of the investor’s own money and money borrowed from the investor’s broker). A margin call refers specifically to a broker’s demand that an investor deposit additional money or securities into the account so that it is brought up to the minimum value, known as themaintenance margin.
A margin call is usually an indicator that one or more of the securities held in the margin account has decreased in value. When a margin call occurs, the investor must choose to either deposit more money in the account or sell some of the assets held in their account.
Source:
1.www.investopedia.com
2.https://medium.com/primexbt/order-types-that-prime-xbt-offers-f27e6c7c7292
3.https://www.investing.com/currencies/streaming-forex-rates-majors
