The use of leverage is derived from margin trading. It comes from the fact that both the buyer and the seller deposit “margin” as a guarantee to fulfill the contract in the future. Since margin is mostly calculated as a proportion of the contract size amount, that proportion is the “leverage concept”.
Margin trading is originally a hedging financial arrangement, in which buyers and sellers provide “margin”, a certain amount of deposit, to guarantee the fulfillment of future contracts.
Most of the online forex transactions are carried out by margin trading. In this article, we explain how leverage works in trading.
In the forex market, the smallest unit used to quantify the movement in the currency quote is called “a pip”, and the difference between the bid-ask prices is called “spread”.
Once you’ve looked at the idea of “pip” in forex trading, you should also pay attention to the value of each pip, so-called pip value. Because forex trading involves different currency pairs, investors will find that the profit and loss for each pip of some currency pairs are different from those of others. Therefore, it is necessary for investors to calculate the actual profit and loss per pip more accurately before the trade order placing, in order to avoid strategies mistaken.
“Spread” refers to the difference between the bid and ask price of a currency pair in forex trading. The widening or narrowing of the spread is directly related to the cost of investors in the trades. This cost is not paid directly, but is hidden and latent. When the spread is wide, investors may not be able to buy or sell at the best market price regardless of whether they enter or leave the market. In other words, it is a cost that affects the room of profit of investors.
Slippage refers to the situation in the trade where the difference occurs between the expected price and the actual executed price, no matter it is a market order, a take-profit order, a stop loss order or any entry order.
A Lot is the measurement unit for the contract size in forex trading. In forex trading, the often-heard terms are a standard lot (100,000 units), mini lot (10,000 units), and micro lot (1,000 units).
One of the characteristics of forex trading is that it can be traded in two directions. In this article, we will explain the meaning of long and short trade and how does short trade work.
Stop loss refers to the situation that the investors choose to close their positions when the loss has reached a preset amount or has reached a specific price level.
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