Traders have to understand the basics of the terminology used in order to understand more about forex market, which includes the knowledge to interpret forex quotes and calculations.
Spread is the difference between the bidding and the asking price in the market of quotes. The Asking price is the one is applicable to a buying order and the bidding price is applicable to a selling order.d
The ability to control large amount of money in the foreign exchange trading is called leverage. It can increase profits as well as losses so it is an important that traders gets sensitive when leverage is being used. Leverage also gives traders the ability to make profits that are sensible on daily movements of currencies and at the same time provides minimal risk on a given position.
The amount of money that is required to order an account is called Margin. It is calculated based on the current base currency market quotes of the Traders account versus the base currency of the traders account, its volume that is requested and the leverage of the trader’s account. Margin is available in the MT4 trading terminal.
The warning message that occurs when a trading account is running out of funds to sustain their current positions in the market is called a Margin call. Through the Margin Call additional funds are requested if and when the market moves against the trader’s position. The eventuality of closing out of the trader’s position is vulnerable once there is an insufficient available fund.
Hedging is the opening of new positions in the opposite direction of an existing position on the same instrument. To hedge a position no additional margin is needed. Again it is important to note that a new position can not be opened with insufficient usable margin at hand.
|Swaps and Rollovers||
Interest income and capital gains can be generated through Forex. There are two different interests rates in every trade that involves two currencies which we call pairs. A rollover or a positive roll is a product of interest rates of the currency a trader bought that is higher than the interest rate of the currency that the trader sold. The opposite of this is called the negative roll meaning to say the interest rate on the currency the trader bought is lower than the interest of the currency sold. These rollovers or swaps can add up extra cost or profits significantly to a trade.
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