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Forex Terms




Forex Terms - Market Mechanism


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Forex Quotes

Forex quotes are the exchange rate ratio of one currency against another

A currency is either based on the USD or vice versa

Base EUR/USD Quote
Currency pairs have bid and ask prices

No last or closing price

This tab displays the currency pair



Percentage in Point



X   =
0.0001 / 1.8800
= 0.00005319

0.00005319 x 1.8800 = 0.00009999

Question: For $100,000, what would the pip be equal to?

100,000 x 0.0001 = $10



Cross Rates

/ $
  X  
$ / ¥
  =  
/ ¥

X   =
0.01 / 143.26
= 0.0000698

1.2600 x 0.0000698 = 0.0000879

Question: For $100,000, what is the pip be equal to?

100,000 x 0.0000879 = $8.79



Lot Sizes

Lot size refers to the quantity of an item ordered for delivery on a specific date or manufactured in a single production run. You can only trade lots, not single units


The lots are denominated in amounts of 5000$ ,10,000$ ,50,000$ ,100,000$, and 1000$


Nano Lot
Micro Lot
Mini Lot
Standard Lot
100 Units
1,000 Units
10,000 Units
100,000 Units



Margin

Margin is the amount you can borrow by the brokerage firm.
It is collateral that the holder of a position has to deposit to cover the credit risk of his counterparty.


Cash to Margin

How much money is needed to enter a trade?

With a 100:1 margin and a lot size of 123.23$ ,10,000$ is needed to buy 1 lot of EUR/USD

If margin = 100:1 and lot size = 100,000$, how much is needed to buy 1 lot of EUR/USD? 1232$
Margin Calls

A margin call occurs when the investor's usable margin falls to zero

When the margin posted in the margin account is below the minimum margin requirement, the broker issues a margin call

Current positions will be closed out automatically

To avoid receiving a margin call, one can either liquidate some positions or deposit