Basics of Forex Trading
Hello Dear Readers , You are surely , Newbie in Forex Trading, if You are reading this Post.
But , No need to Worry , We will help You become a PRO TRADER.
Today's Lesson will cover some Basics of Forex Trading , To be precise , I am going to tell You ,
Today's Lesson will cover some Basics of Forex Trading , To be precise , I am going to tell You ,
- What is a PIP ?
- What is LEVERAGE ?
- What is SWAP ?
- What is MARGIN ?
- What is SPREAD ?
So , Lets Get to Work.
Pip:
A PIP is a very small measure of change in a currency pair in the forex market, In other word, Pip is a form of earning in Forex trading market.
A pip is a standardized unit and is the smallest amount by which a currency quote can change, which is usually $0.0001 for U.S.-dollar.
For example: The price of USD/JPY changes from 1.4550 to 1.4590, then in this currency pair there is a difference of 40 pips. The Pair Gained 40 Pips , It means the Price of USD went $0.0040 with respect to JPY.
Leverage:
Leverage is expressed as a ratio and is based on the margin requirements imposed by your broker.
For example, if your broker requires you to maintain a minimum 2% margin in your account, this means that you must have at least 2% of the total value of an intended trade available as cash in your account, before you can proceed with the order.
Here, as you can see , Margin is 2% , So , it means the leverage is 50:1.
Comparison of leverage ratios and the minimum margin requirements expressed as a percentage.
If Leverage Ratio is... Then, the Minimum Required Margin equals...
50:1 2%
40:1 2.5%
30:1 3.3%
20:1 5%
10:1 10%
Margin:
The amount of equity that a trader must set aside in order to maintain open positions. This amount is a percentage of the total value of the contract.
Spreads:
The spread is the amount of pips between the bidding price and the asking price is called the spread. The spread is what forex brokers use to make money on every forex trade placed through their network. For example, the forex broker may be paying a price of 1.3600 for buying or selling. The broker will then allow you to buy the currency for 1.3601 or sell it for 1.3599. The spread always stays around the actual price that the forex broker is paying. So when you buy, you get one end of the spread and when you sell you get the other end of it, and vice versa. By the time you close your trade, you will have always paid the spread.
For example, if your broker requires you to maintain a minimum 2% margin in your account, this means that you must have at least 2% of the total value of an intended trade available as cash in your account, before you can proceed with the order.
Here, as you can see , Margin is 2% , So , it means the leverage is 50:1.
Comparison of leverage ratios and the minimum margin requirements expressed as a percentage.
If Leverage Ratio is... Then, the Minimum Required Margin equals...
50:1 2%
40:1 2.5%
30:1 3.3%
20:1 5%
10:1 10%
Margin:
The amount of equity that a trader must set aside in order to maintain open positions. This amount is a percentage of the total value of the contract.
Spreads:
The spread is the amount of pips between the bidding price and the asking price is called the spread. The spread is what forex brokers use to make money on every forex trade placed through their network. For example, the forex broker may be paying a price of 1.3600 for buying or selling. The broker will then allow you to buy the currency for 1.3601 or sell it for 1.3599. The spread always stays around the actual price that the forex broker is paying. So when you buy, you get one end of the spread and when you sell you get the other end of it, and vice versa. By the time you close your trade, you will have always paid the spread.
