Fundamental guide to online forex trading
Every trader should learn these forex trading key terms:
- Base currency & Variable/quote currency: In a currency pair, base is the first currency & variable is the second currency.
For eg. in AED/USD, the United Arab Emirates Dirham is the base currency & USD the variable one.
- Bid: It is the highest price a buyer is ready to pay which occurs to the left of the quote and usually red in color.
- Ask: It represents the lowest price a seller is ready to accept, seen on the right of the pair and often in blue.
- Spread: It is the clear difference between the bid and the ask price representing actual spread in the market and additional spread added by the broker.
- Pips/points:The one digit move in the fourth decimal place is called a pip. For eg. if AED/USD moves from 0.2701 to 0.2702, that .0001 USD rise in value is considered as one pip.
- Leverage: It allows traders to put up a small amount of capital to control larger positions. All to amplify your profits and reduce losses.
- Margin: It is the amount of money required to open a leveraged position. It is also the difference between the funds being lent by the broker and the full value of the position.
- Margin call: A margin call occurs when the total capital deposited, plus or minus any profits or losses, dips below a certain point.
- Liquidity: When a currency pair can be easily bought or sold because of a large number of people trading them, it’s said to be liquidity.