Before entering the Forex market, you need to equip yourself with terminology used in courses or software on the subject. The following terms have been put together to teach the inexperienced forex trader the basic concepts of forex trading. Although they sound technical, most are easy to understand and use.
Let's start with the instruments that are traded on the currency markets. Currencies are traded in pairs so that the instrument is always listed in this double denomination. The reason for this is simple; The basis of currency trading is the exchange of one currency for another. So if the pair is the euro and the dollar and the forex trader is long or buys the euro in the hope that he will appreciate it, the trader is effectively also selling US dollars to buy the euro. The most commonly traded pairs are the British pound and the US dollar (expressed as GBP / USD), the Euro and the US dollar (the EUR / USD pair), the Australian dollar and the US dollar (AUD / USD) -Pair). the USD and the Japanese yen (USD / JPY pair) as well as the Canadian dollar and the USD (USD / CAD pair). These pairs account for well over 80% of the total trading volume on the foreign exchange market. The advantage of trading these currency pairs is that they are very liquid and allow the investor to convert their portfolio into cash very quickly in order to make a profit.
In each pair, the first currency is called the base currency, which is used to counteract the second currency to imply the pair's price. The second is called the quote currency, and the pair price is expressed in units of the quote currency that is required to purchase a unit of the base currency. Assuming the price of the GBP / USD pair is 1.5, this means that 1.5 USD will buy 1 GBP.
Each pair is given in the form of a bid-ask spread. The bid rate means that this is the rate at which your forex broker offers to buy the currency, while the ask rate is the rate at which the forex broker wants to sell the currency to the forex trader. The bid price is always lower than the ask price and the currency trader buys at the ask price and sells at the bid price. The bid-ask price is given as follows: GBP / USD 1.532 / 5, ie the bid-ask price is 1.532 and the bid-ask price is 1.535.
A rate point or pip, as it is commonly called, is the smallest incremental change a currency pair undergoes. For example, changing the GBP / USD price from 1.532 to 1.542 is a change of 10 pips. A trading margin is a deposit that is a minimum amount or a small percentage of your traded amount that you have to deposit. The remaining amount will be provided by your broker. This amount can vary from 1% to 0.25%, also referred to as 100: 1 and 400: 1. Most Forex brokers offer 100: 1 or 200: 1 to most customers. This is risky, but it allows the trader to use a large amount that he would otherwise not have access to.
Finally, a margin call can occur if the forex trader allows the trading account balance to fall below the margin deposit percentage agreed with the forex broker. The broker automatically sells your long positions or buys your short positions and deletes the entire trading account. The margin amount is returned to the trader to protect the trader from losing more money than he has.