Beginner’s Education Articles
What is Forex?
Foreign exchange, or Forex for short, is the “place” where currencies are traded. Currency trading is the exchange of one type of currency for another. In the forex market, currencies are traded in pairs. When a trader buys a currency, he or she is selling another...
What is a Pip?
A point in price – or pip for short – is a measure of the change in the exchange rate of a currency pair. It is the smallest unit of measurement we use when trading currencies. Most currency pairs are measured to five decimal places. For pairs such as EURUSD, GBPUSD a...
What is a Bid Price/What is an Ask Price?
The Bid price is the price a forex trader is willing to sell a currency pair for. Ask price is the price at which a trader will buy a currency pair. Both of these prices are given in real-time and are constantly updating. So for example, the British pound against the...
What is Forex Spread?
A bid-ask spread is the amount by which the ask price surpasses the bid price for an asset in the market. Essentially a spread is the difference between the ask price and the bid price. In other words, it is the cost of trading. For instance, if the Euro to US dollar...
What are Base and Quote Currencies?
In forex, currencies are always traded in pairs. The first currency is called the base currency and the second currency is called the quote currency. For example, EURUSD, means that the base currency is the Euro and the quote currency is the US Dollar. The quote...
What are the “Major” trading currency pairs?
In foreign exchange (Forex or FX) you exchange one currency for another with the intention of making a profit. The "Majors" in Forex are the seven most traded currency pairs. The Majors share certain characteristics that make them more popular for traders. These...
What are Crosses?
Crosses is the label given to currency pairs that do not involve the USD (Us Dollar). Some of the most traded Crosses include the Euro Japanese Yen which is represented by EURJPY, New Zealand Dollar Japanese Yen which is represented by NZDJPY, British Pound Japanese...
What are Exotics fx pairs?
Exotics are currency pair groups that involve either a currency from an emerging economy either a currency from a small country with a small developing economy. Examples would include US Dollar Mexican Peso (USDMXN), US Dollar South African Rand (USDZAR), US Dollar...
What is a Lot in Forex?
Currency pairs are always traded in “lots”. A "lot" represents the amount of the currency pair that you are buying or selling. The three most common types of lots are the standard, the mini and the micro. One standard lot is equal to 100,000 units of the base...
What is a Pip’s Worth?
In previous educational articles, we have looked at pips and explained what they are, how to read currency pairs and the different types of ‘lots’. Now we are going to see how to calculate the monetary value of a pip. As a reminder, a pip is the measure of the change...
What Is Leverage?
Leverage in forex is a “loan” that the broker gives to the trader so that the trader has more capital to trade with than what he or she initially deposited. Leverage is expressed in the form of a ratio and it depends on the client's knowledge and experience. Pure...
What Is Margin?
Since we have covered Leverage and how Leverage works in Forex, let's take a look at Margin. Margin is the amount of funds that the broker requires from the trader as collateral, in order to open a specific position of volume based on the leverage that the client has...
What is your balance?
Balance in forex refers to the amount of money you have in your trading account. It is very important to remember that your balance does not include any profits or losses you might have from any open positions. If you have open positions, your balance might change...
What Is your Equity?
Now that we have already covered Balance, it is vital to understand what Equity is. In trading, equity refers to the amount of money a trader has in their trading account (the Balance) plus or minus any profit or loss from open positions. Many traders confuse these...
What is Free Margin?
Free Margin in forex trading in its simplest definition, is the money in your trading account that is available for trading. It is calculated by using the formula: Free Margin = Equity - Margin (of open positions). Let's look at a relevant example. A trader enters a...
What Is Margin Call?
Margin Call is a notification which alerts you that you need to deposit more money in your trading account, or close losing positions, to free up margin. Margin Call is denoted as a fixed percentage, determined by the broker. You can find the Margin Call percentage in...
What Is Stop Out?
Since we have already covered Free Margin and Margin Call, it is now time to look at Stop Out. In forex trading, Stop Out is the level at which the broker starts closing automatically (“liquidating”) all of his least-profitable open positions in the foreign exchange...
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