As the world becomes more connected and knowledge of the global economy increases, more people are getting into forex trading. With a lot of uncertainty in the market, it is important to understand what forex trading is, how it works and how to get started. We have compiled a list of common questions that forex traders want to know and answered them for you. Visit MultiBank Group
The foreign exchange market, which may also be called forex or FX, is the international currency trading market. It is the biggest financial market in the world which also boasts of having the highest liquidity as compared to other markets. When you trade forex, currencies must always be traded in pairs. For instance, the Australian dollar and the U.S. dollar (AUD/USD) or the euro and the Japanese yen (EUR/JPY).
A currency pair typically includes a base currency and a quote currency (or counter currency). It is a method of comparing and pricing two currencies against one another. Currency pairs are generally depicted as two abbreviated currency names, which are compartmentalized with a slash. For instance, in the case of the “EUR/USD” currency pair, the euro (EUR) is placed as the base currency and the U.S. dollar (USD) acts as the quote currency.
Currency pairs must be traded in particular amounts are known as lots, which refer to the number of currency units you want to buy or sell.
The standard lot size is 100,000 units of currency. Smaller than a standard lot are also mini, micro, and nano lot sizes which have 10,000, 1,000, and 100 units respectively. Know More Dubai
Slippage happens when you want to make an entry into the market at a particular price, but given the high volatility in such periods, your position is filled at a rather different price.
Slippage refers to the difference between the expected fill price and the actual fill price. In case the actual fill price is higher than the expected fill price, it is known as “positive slippage“. In case the actual fill price is lower than the price requested, this is referred to as “negative slippage“.
Traders generally face negative slippage when the markets are extremely volatile markets such as in instances where news or economic releases occur. This is the reason why you should exercise caution when you trade the news.
Leverage refers to being able to control a large amount of money using none or a small amount of your own money and borrowing the balance. Using leverage makes it possible for traders to trade in bigger sizes which make room for greater potential return (and losses) than they might have been able to make with their existing capital. It’s important to understand how leverage must be used cautiously.
Margin essentially refers to the collateral to open and keep up a position. Prior to placing a trade, you should add a deposit to your margin account. The amount would depend on the margin percentages that your broker may demand to trade leveraged positions.
Volatility is important for measuring how much a price may fluctuate in a certain period. Volatility refers to something which may help in looking for possible breakout trade opportunities and enhance the placement of stop losses. Visit MEX Group
Read also: Many Factors to Consider in Comparing Currency trading Brokers
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