BEST FOREX BROKERS | FOREX EDUCATION: MUST-KNOW FOREX TERMS
The forex (short for foreign exchange, sometimes even called FX) market is a global decentralized or over-the-counter market for people who want to trade currencies. All currencies’ values are determined by this market. Here, you can buy, sell, and exchange currencies at determined prices.
The most common trading instrument is currency pair. A currency pair includes 2 parts: Base currency and Quote currency. Thanks to those, we can calculate the exchange rate of a pair.
An exchange rate demonstrates the value of the first specified currency (base) expressed in terms of the other currency (quote). Let’s take the EUR/USD pair as an example, if its value is 1.32016, we can understand that 1 Euro is equal to 1.32016 US dollars.
If you want to buy the EUR/USD: the exchange rate tells you how much you need to pay in terms of the quote currency to buy one unit of the base currency. In other words, in the example here, you have to pay 1.32016 USD to buy 1 Euro.
In case you want to sell the pair EUR/USD, the exchange rate will show you how much you will get for one unit of the base currency. To be more specific, based on the example, you will get 1.32016 USD for every Euro you sold.
Dynamic (floating) spread is spread that is constantly changing. Spread value depends on market volatility and may be wider or narrower than average. It may differ from average 3-5 or even more times during economic news release or high market volatility.
It is not a fee or transaction cost. Margin will be returned back after position is closed. Margin can be thought of as a good faith deposit required to maintain open positions. In other word, if client wishes to open any position (Buy or Sell), they need to keep amount of funds as security with the broker to keep the position open. Once the position is closed this amount of security will be returned to the client. Different instruments have their own margin requirements.
Leverage is the ratio of equity to loan capital is known as leverage. The terms financial leverage and credit leverage are also widely used.