When you begin a new career or even a hobby, you will undoubtedly encounter various terminologies that you will not grasp at first but which will become understandable with time. The only issue with not knowing the industry’s jargon is that it prevents you from progressing with your chosen profession. Many people, including the elderly, freely admit that they would never comprehend stuff like machines because the vocabulary used seems to them to be a foreign language.
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When it comes to Forex Markets, the same principle holds. We wrote the following post to help you understand Forex terms.
1. Margins
To deal in Forex, you must have a margin. A margin may be thought of as a minimum deposit or collateral. This margin encourages you to take out a ‘loan,’ giving you access to a more significant sum of money. When there are insufficient funds in your trading account to cover open positions, you will receive a margin call. In other words, when the floating losses surpass the required minimum margin.
2. Exchange Rate
Both traders are interested in the exchange rate of a currency pair. Since it indicates the Price of the base currency expressed in terms of the counter-currency, the exchange rate is commonly referred to as the mark.
An increase in a currency pair’s exchange rate means that either the base currency or counter-currency is appreciating against the base currency. A drop in the exchange rate, on the other hand, indicates that the base currency is losing value against the counter-currency or that the counter-currency is gaining weight.
3. Bid, Ask and Spread Price
Market makers are the people who control the forex markets. At all times, they have a two-way demand for all currencies. As a result, they deliver, buy and sell quotes. The Price they are willing to pay for something is often less than the Price they are eager to sell it for. The difference to reimburse them for their gamble by investing in a risky commodity for an indefinite amount of time. The bid price is the Price at which they are willing to purchase, while the asking Price is the Price at which they are eager to sell. The disparity between the two is known as the bid-ask spread, or simply the “spread” in some cases.
4. Lots
When selling Forex market futures, this term is commonly used. Future lots on the forex market are often of a set scale. Contracts in US dollars, for example, could be available in $5000 increments. As a result, any deal worth $5000 will be referred to as a lot. As a result, if you want to buy USD 25,000 in the future, you’ll need to buy five lots. Different lot sizes are available for other currencies. Currency pairs with greater liquidity are provided more stability by market makers.
5. Slippage
When selling, you can find a minor gap between the Price you expect and the Price you get (the Price when the trade is executed). Slippage is the term for what happens when this happens. As a broker, it’s a natural occurrence that can act in your favor or against you. Price instability and execution rates are the primary causes of slippage.
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