Let us continue the free forex training here. Now we move to the words that used in forex trading and it is globally used by traders. But if you already familiar with these words then you can skip this post and move to the next articles. Let’s start with:
Lot – Mini Contract and Contract Standard / Regular
Lot is the standard unit for the deal happen. Any deal, set value is in the number of lots. In Indonesia, the magnitude varies depends on policy Dealer / Broker.
If we buy gasoline, the size in liter, for forex trades called Lot. How big does a Lot? If the world stock 1 Lot = 500 shares, on forex trading 1 Lot = 10,000 for the respective currency, eg, 1 Lot USD / JPY = 10,000 USD and 1 Lot of GBP / USD = £ 10,000. 1 Lot size = 10,000 called the Mini contract, why is called the Mini contract? Since earlier in the forex trades 1 Lot = 100,000 the corresponding currency (also known as the Contract Standard / Regular), then because of the high interest in forex trading then made a mini contract whereby 1 Lot = 10,000 corresponding currency
Margin
Margin is a Capital required in forex trades as collateral in the transaction.
Suppose such Advance purchase of a home. When you submit a home purchase down payment of 500 thousands dollars for a house worth 1 million dollars and we have the contract purchase agreement, you are legally legitimate owner of the house, although only holding the contract. This contract can you sell at full price to someone else, for example, to 1.2 million. You’ll get a net gain of 200 thousands. The same is true in forex, which are contracts traded currency, eg USD / JPY then 1 lot contract value is USD 10,000, to get us out quite a margin (deposit) of USD 100.
In forex trades, margin deposited when opening a position and then will be returned when closing the position, the same as buying or selling a house earlier. You deposit money when purchasing 500 thousands and then resold for $ 1.2 million, when you receive the money of 1.2 million, then we allot 100 million in the first seller and the seller return the down payment (initial capital) of 500 thousands and we have the money 500 thousands of initial capital and surplus 20 thousands.
Leverage
The leverage in Forex trades is the ratio to determine how much margin (deposit) required in the transaction, where the ratio will be multiplied by the contract size. Example: Leverage 1:200 on a mini contract account is 10,000 then the margin is (1 / 200) x 10,000 = 50 units of currency traded.
Eg open a position USD / JPY for 1 lot for a mini contract, then the purchase is $ 10,000, the margin needed is 1 / 200 x $ 10,000 = $ 50. If trading with GBP / USD then used margin is 50 pounds. For the Standard account, the contract used was 100,000 with 1:100 leverage, so 1 lot USD / JPY = USD 100,000 and the margin required 1 / 200 x $ 100,000 = $ 1,000
Order
Instructions in forex trading to execute trades on a certain rate.
Orders are commands to buy or sell at a certain price but if the Order was delivered ‘match’ or ‘no rival’, for example if you order and purchase at the price of 9500 and by chance there is that want to sell at the same price, then the Order into position. So long as the order has not ‘match’ then the name remains the order but after the ‘match’ is now a position. To sell back your existing position (closed position) then it can be done through Order back but with the reverse direction (if it is closed with a Buy Sell and vice versa)
Buy
The position in Forex Trading for the Buy and done if the price is expected to rise. In short time buy cheap and sell when expensive, your profit is the difference between the price when bought with resale time
Sell
The position in Forex Trades for Sale and done if the price is expected to drop so that when prices go down you can close your position with a Buy Sell lower. In short, such as consignment, we sell a good price in advance (borrow) and then we buy back when prices are low, the difference becomes our advantage.
By: Charlie Van Houtten