Forex Terms - Market Mechanism
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
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
€ / $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 = $8.79
Lot size refers to the quantity of an item ordered for delivery on a specific date or manufactured in a single production run. You can only trade lots, not single units
The lots are denominated in amounts of 5000$ ,10,000$ ,50,000$ ,100,000$, and 1000$
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$, how much is needed to buy 1 lot of EUR/USD? 1232$
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