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What is margin, pip, spread, in forex trading?

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            What is margin in forex trading?
                


Margin is a key part of leveraged trading. This is the term used to describe the initial deposit you put in to open and maintain a leveraged position. When you're trading Forex with margin, remember that your margin requirements will vary depending on your broker and how big your trades are.


The margin of the full position is expressed as a percentage. Rather opening a trade in EUR/USD may require a deposit of 2% of the total value of the position. This means that while you are still risking $10,000, you only need to deposit $200 to get full exposure.



                       What is a pip in forex trading?

                      


The exception to this rule is when the quote currency is listed at a much smaller value, the most notable example being the Japanese yen. Here, a movement to the second decimal place constitutes a single pip. So, if EUR/JPY moves from ¥172.119 to ¥172.129, it has moved a single pip.


                    What is the spread in forex trading?

In forex trading, the spread is the difference between the quoted bid and ask price for a forex pair. For example, if the buy price in EUR/USD is 1.7645 and the sell price is 1.7649, the spread will be four pips.

If you want to open a long position, you trade at the bid price, which is slightly higher than the market price. If you want to open a short position, you trade at the sell price – slightly less than the market price.

IG offers competitive spreads of 0.8 pips for EUR/USD and USD/JPY and 1 pips for GBP/USD, AUD/USD and EUR/GBP.

                  What is the big deal in forex trading?

Currencies are traded in bulk – batches of currencies are used to standardize forex trades. There are several lots in forex trading including a standard lot which is a single currency of 100000 alternatively sometimes mini lots and micro lots can be traded which have a value of 10000 to 1000 units respectively.

Individual traders don't necessarily have 100,000 dollars, pounds or euros to put into each trade, so many forex trading providers offer leveraged



                                    What moves the Forex market?

Like most financial markets, Forex is primarily driven by the forces of supply and demand, and it is important to understand the influences that drive these factors.


Central bank

Supply is controlled by central banks, which can announce measures that will have a significant impact on the value of their currency. Quantitative easing, for example, involves injecting more money into an economy and devaluing its currency.

The central bank controls the base interest rate for an economy.

If you buy an asset in a currency with a higher interest rate, you can get a higher return. This could drive investors to a country that has recently raised interest rates, thereby boosting its economy and driving its currency.

However, high interest rates can make borrowing money difficult. If borrowing money is more expensive, investing is harder, and the currency may weaken.

Margin is usually expressed as a percentage of the full position

News reports

Commercial banks and other investors want to keep their capital in economies that have a strong outlook. So, if a positive news hits the market of a particular region, it will encourage investment and increase demand for that region's currency.

If the supply of currency does not increase in parallel, the disparity between demand and supply will cause its value to rise. Likewise, a piece of negative news can dampen investment and lower currency prices. As a result, currencies reflect the reported economic health of the country or region they represent.



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