Key Terms And Concepts
When it comes to forex trading, there are some basic terms and concepts that should be understood:
When it comes to forex trading, there are some basic terms and concepts that should be understood:
- Exchange rate: Exchange rate is simply the price of one currency in terms of another's. There are two components, the domestic currency and the foreign currency.
- Pips: A pip is the smallest price change that a given exchange rate can make.
- Spread: The spread is the difference between the two prices on a currency pair. You have the ask price and the bid price.
- Leverage: This concept is used by both companies and investors. Companies use it for the financing of their assets. Investors use leverage to increase the returns they can get on an investment.
- Forex broker: Forex brokers are firms that provide forex traders with access to a platform that for the trading of foreign currencies. Brokers are used for access to the 24-hour currency market. They are usually compensated the spread of a currency pair.
- Face value: A familiar concept throughout investing and securities, face value is the stated dollar value of a security. In the case of stocks, it is the original cost of the stock as shown on the certificate.
- Rollover: This rate is the the net interest return on a trader's currency position. This rate converts net currency interest sales into a cash return for the position.
