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|Lot and Volume||Lot is a collection of units. This actually depends on the Trading Platform. 1 lot can be 100K whilst on a different Platform, it can be 10K. A lot and a volume is identical, but differs only on formatting e.g. 1K lot or 10K lot can be 0.1 or 1 volume respectively.||10K Units = 1 Lot = 1 Volume||I may get this wrong but does that mean if I buy or sell 1 volume (i.e. 1.00 or 10K units), it would equate to 10K * quoted currency?|
|Unit||1 unit is basically a dollar for USD. It's the base currency of the trader's account and not necessarily the traded pairs per se; but it can be used interchangeably.||EUD:USD. Though the base for this pair is EUD, the base unit itself is USD if the trader's account is USD.||But to be honest, sometimes I do get confused when people say 'based currency'; if there's a different explanation, please let me know!|
|Pip||A pip is basically the smallest difference in a pair currency ('difference' here means Buy - Sell). A pip can be either on the 4th position or the 2nd position.||1.0601 - 1.0600 = 0.0010. So we say the trader has gained 1 pips.||I understand there's "Pippetes" - I don't think this is critical (yet) for a beginner?. As I understand it's the 5th or 3rd decimal?|
|Lot Size and Pip Value||Your chosen lot size can determine the value per Pip. The formula is: Lot size \ Pip*||10K * 0.0001 pip = 1$ So if there's a positive difference, you'd get 1$ gain.|
|Investment Returns||Your profit can be determined by the following: (Pip / Quote rate) * Lot Size||Say, EUD:USD is 1.0000:1.0001, so a difference of 1 pip. Thus, (0.0001/1.0001) * 10K = $0.9. You'd gain $0.9 per trade.||(not too sure about this one actually)|
|Leverage and Margin||Personally, I see leverage as % of how much you must have in your account against the "capital" the broker would give. Formula is (1/X)*100. The minimum amount you must have to trade by the given leverage is known as 'Margin'||Say the broker will give you 1 lot of 10K Units. But you must have 1% of that amount deposited. So that's 1:100 or (1/100) *100 = 1%. So 1% of 10K is $100. You need to deposit $100 to trade and the broker will give you a $10,000 capital. Your margin is basically $100.|
|Margin Level||The higher the % of the Margin Level, the better; this basically means you have money to trade as your Used Margin is low! Equations is: (Equity/ Used Margin)/100||As I understand, levels lower than 100% is not good as your Used Margin is getting larger. A 5% will force your broker to close your trades automatically. When your broker closes your trades like this, a Margin Call Level is used.||For "Used Margin" I understand this only for all "Opened" trades, and not "Closed" trade?|
|Balance||Balance is balance :p (hehe). It's basically what's left from whatever you've deposited.|
|Equity||It's basically your real-time balance. It includes current profit and losses that are not closed yet.||I want to compare Free Margin here but not too sure how to word it. I understand the formula for Free Margin is Equity - Margin.|
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If you want to start forex trading, before that you should know the basic forex trading terminology. They are: Margin, Leverage, Base & Quote Currency and Pip.
Margin or margin trading, can be understand as using funds from a forex broker to trade. In other words, the broker is loaning you some money to trade in larger sum without you necessarily having to deposit that amount in your trading account. This common practice increases considerably potential gains, but also some chances there for traders to get huge losses.
Leverage is the ratio of the capital used for trade to the required deposit amount. In other words, when you see leverage ratio 100:1, it means a trader should deposit $1 to trade with $100. If trader gets profit, then both will shares the profit if loss happens trader loses his $1. Leveraging positions is a very common practice among Forex traders, who typically operate with small amounts. Leverage enables them to widen their profits, but also their loses, turning this financial tool into a dangerous two-way sharp knife.
Base and Quote Currency
Base currency: the first currency displayed in a currency pair. For example, if we are analyzing the EUUSD - the EUR will be our base currency. In other words, the base currency refers to the unit which is converted into another currency. Following the example, 1.0000 EUR equals 1.2000 USD.
Quote currency: it is the second currency seen in a currency pair, also known as the pip currency. It expresses the rate to which the base currency is exchanged at a certain time.
A pip is a basic concept of foreign exchange (forex). Pip (percentage in point) is the smallest unit of a currency. For example, an EUUSD pair is usually expressed with five digits. In this case, 0.0001 will be a pip. A different story for the Japanese yen i.e., the pip equals to 0.01.
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