FOREX TRADING

These are some forex basic forex terms that cause a lot of confusion to amateur forex traders. We will try to give simple and practical definitions.

Margin practically is the money you have deposited in order to trade. If your money is depleted then you may have not sufficient margin in order to trade.

Leverage is called the factor that mupltiplies your margin in order to realize more profits from your trade. When a broker offers a leverage e.g. 400:1 this means that for every dollar in your trading account you can trade 400 dollars due to temporary borrowing of money from the broker for as long as your trade lasts. For example if you deposit 1000 dollars in a trading account with leverage 100:1 this means that you can practically trade as if you had 100,000 dollars. This is very important in Forex because you trade the last decimal change in the currency pair value so you need a large amount of money in order to realize a decent profit.

When you buy you are “long” in Forex language. When you are long you want the currency pair to appreciate in order to make profit. Long positions are profitable when the market is bullish that is the direction of the trend is upwards. When you sell you are “short”. When you are short you want the currency pair to depreciate in order to make profit. Short positions are profitable when market is bearish that is the direction of the trend is downwards.

The last digit of the price in a currency pair is called pip. In EUR/USD 1.2640 the 0 digit is called pip. More specifically the change of the last digit in one unit is called one pip change. The pip numbers in Forex is the indicator of your profit or loss. In Forex you trade the last decimal change in the price of currency pair.

A limit order is an order to trade a currency at a specific value either short or long. This order remains valid for as long as you want until the currency reaches the value that you have specified. Stop loss is an order to exit a trade at a specific currency value according to risk appetite. With stop loss you can minimize you losses. Limit and stop orders can automate your trading without the need to be in front of the screen all the time.