Forex Trading Popular Terms
You trade Forex in Lots. Each lot represents 1,000 currency units. For example if you buy 1 lot of GBP/USD at 1.45, you are buying GBP 1000 and selling USD 1450. If you buy 10 lots then you are buying GBP 10,000 and selling USD 14,500
The currency value is counted in pips where one pip equals 0.0001, two pips equals 0.0002, three pips equals 0.0003 etc. It represents the number of decimal places an exchange rate can be traded at. With a few exceptions, the majority of currencies are traded to four decimal places. For example GBP/USD is currently trading at 1.4451. If the GBP value were to increase by 1 pip it would be 1.4452. If it increased by 6 pips it would be 1.4457
As mentioned above, Leverage allows you to take advantage of small market movements and make large profits (and potentially large losses). As an example assuming Leverage is 200:1 you only need to pay $5 deposited into your account in order to execute a $1,000 trade.
In order to maintain an open position you need to have deposited a required amount. This is called the margin requirement which is basically a percentage of your open equity that is allocated for margin. It acts as a buffer to prevent market moves wiping out all a higher amount than you actually have deposited. Once the margin requirement is reached you will either be asked to add additional funds or close your open position.
It shows the Open, Close, High and Low prices for the specified period. As illustrated below, the actual candle body shows the Open and Close prices and the wicks at the top and bottom show the high and low prices during the period.
If the close price is higher than the opening price the candle will be one colour (eg blue). If the close price is lower than the opening price the candle will be another colour (eg red).
In addition to charts, traders can use what are called trading indicators to help them make trading decisions. These indicators are shown overlaying and under the candlestick chart, and are used to provide information to the trade as to the price trend and other variables that can help predict what is going to happen in the future. There are hundreds of different indicators available to choose from, each of which can be customised to the specific preferences of the trader.