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.
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”.
Overnight interest is a term commonly used in online forex trading. Rollover, swap fee, overnight funding, in fact, all refer to the same thing. Generally, if the investor has an open position at 5 PM EST (summertime), there will be the overnight interest “cost” as settlement occurred. Such “interest” includes the “rate differential” of that trading product (currency pair) as well as the financing cost of the trading platform.
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.
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.
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).
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