Friday, July 1, 2011

Forex Trading Education: Basic Guide(2)

Benefits of Forex Trading if done properly will be great. Its main benefit is obviously the extra income. Your life becomes better for it. Another benefit is having the ability as a forex trader you will know in advance the most recent economic events. Good or bad you are so more could be leading to circumvent or take advantage. To get the benefits that you must want to learn the fundamentals of forex trading properly. Learning can be done by reading forex trading tutorials, open a blog page about forex trading, and looking for a forex trading guide from a trusted source. Understand the basic terms of forex trading will be very beneficial for you. The following are some terms you should know.

What is a Lot?
Lot is another name for Volume. Standard unit size of the forex trading transaction. Typically, one standard lot is equal to 100,000 units of base currency, while 10,000 units is the mini account, then 1,000 units are micro account.

What is Take Profit in trading?
Take Profit is setting stop trading after we get the profit. Example: Buy EUR / USD at 1.4300 and the position moves the price reaches 1.4350 and if we set a take profit at 1.4350, then you've got a profit 50 pips.

What is Stop Loss?
Setting stop trading if you have a loss. Example: Buy EUR / USD at 1.4300 and price position moves down to 1.4280 and if the Stop Loss is set at 1.4280, then you lose 20 pips.

What is Balance?
The total of all your money deposited in your trading account.

What is Margin?
The money that you used to open or maintain a position. The amount of margin required depends on how much you use a lot for trading.
Margin calculations: LOT * CONTRACT SIZE * CURRENT MARKET PRICE / LEVERAGE

Margin Calculation Example:
GBP / USD: 1.5020 (current market prices)
Lot: 1.0
Contract size: 100.000
Leverage: 1:2000

So 1.0 (lot) * 100,000 (contract size) * 1.5020 (current market price) / 200 (leverage)
- 1.0 * 100.000 = 100.000 * 1.5020 = 150.200 / 200 = $ 751 (this is an unused margin)

What is Free Margin?
The definition of Free Margin is in which to trading or to maintain your open position.

What is Margin Level?
Level Margin calculated on a percentage of the level of free margin.

What is Equity?
Equity is the Balance-Floating.

What is a Buy Stop?
Buy Stop is orders delay that you can place and put your order above current market price. Example: Current Market Place EUR / USD is 1.3530, you can place a Buy Stop above the current market as 1.3550. When the market price rose to 1.3550, it will automatically open your Buy Stop position to the position of Purchase (Buy Position).

What is a Sell Stop?
Sell Stop is order delay that you can place and put your order below current market price. Example: Current Market Place EUR / USD is 1.3530, you can position the Sell Stop below the current market as 1.3520. When the market price falls to 1.3520, it will automatically open a your Sell Stop position into a Sell Position.

What is a Buy Limit?
Buy Limit is order delay that you can place and put your order below current market price. Example: Current Market Place EUR / USD is 1.3525, you can place a Buy Limit below the current market as 1.3520. When the market price falls to 1.3520, it will automatically open your buy limit position to the position of Purchase (Buy Limit).

What is a Sell Limit?
Sell Limit is order delay that you can place and put your order above current market price. Example: Current Market Place EUR / USD is 1.3525, you could put a sell limit position above the current market as 1.3530. When the market price rose to 1.3530, it will automatically open your sell limit position into a position of Sell (Sell Limit).

Margin Call
Margin Call is a request from a broker forex trading or dealer for additional funds or other collateral to guarantee performance on a position that has moved away from your position.

Step Out
Step Out is your position will be automatically closed when your margins are not sufficient to cover your losses if the market moves away from your position.

What is the Gap?
Refers to two kinds of situations: A bid from the current quotation which is higher than the previous quotation Ask, and an the current quotation Ask which is lower than the bid of the previous quotation. It sometimes happens on Monday when the market opens.

What is Spike?
Spike is a Error Quote from Broker forex trading server. Spike is the error quote with the following characteristics:
a. Significant price gap;
b. In a short period of time the price rebounds with a price gap;
c. before the appearance there is no rapid price movements;
d. before the appearance there is no important macroeconomic indicators and / or corporate reports.

Usually the broker got a quote from the system error information. Quote error occurs mainly due to two reasons:
Technical failures (technical failure)
Deal separate, often mismanaged, because of the information system.

What is Slippage?
Slippage is the difference between order price and the executed price, calculated in pips. Slippage often occurs at a very fast market movements, or when the execution is done manually.

What is the Maximum Deviation?
Maximum Deviation is setting in order to be allowed enter into the market with different price set for buying or selling when the market moves too fast.

What is Swap?
Swap is an exchange flow of payments over time according to specific requirements. Type most commonly used is interest rate swap, in which one party agrees to pay a fixed interest rate in return receive an adjustable rate from another party.

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