Important Financial Terminology Regarding the Investment Business
Forex deals financial activities, and without an understanding of some financial terminology, it may be tough for beginners to execute their trades. Here, we will discuss the terminology regarding FX trading for a smooth trading experience.
A currency pair is called long when we buy it. The first currency pair we buy indicates the bullish momentum, and the currency pairs, which are sold by us, is in the bearish momentum. For instance, if we purchase a EUR/USD currency pair, we will expect the Euro price will go high, and the USD will go down.
The second currency is generally bought, and the first currency is sold when we take the short in FX. Going short means we are in the expectation that the price will be declined recently. In FX, whether someone is making short or long trades, they are always short in one currency and long in another.
- Pending orders
It indicates a type of order which is not executed yet and not working as a trade. Investors play the order by setting a limit when they trade. The setting of limitation indicates the pending situation of the order if the reach of the financial instrument does not get a specific point. Note that the pending order condition slightly varies depending on the broker. Visit the company website of Saxo and see the optimum condition to set pending orders.
Technical analysis is followed by the longer section, which means if an investor is eager to buy a financial instrument at the support level and the market is not at such a level, without waiting, a pending order should be placed. When the price reaches the order position, it is automatically executed. There are four types of pending order. They are discussed below.
1. Buy limit
Buying financial instruments at the lowest price than the current one indicates the buy limit.
2. Buy stop
Buying at a higher price than the current one indicates the sell limit.
3. Sell limit
Selling at a higher price than the usual price is identified as the sell limit.
4. Sell stop
Buying in a high and selling in a low indicates the sell stop point.
Among all the financial markets, Forex brokers provides the best leverage. It indicates a great amount of investment, depositing a little amount of money. The rest of the money is generally covered by the broker leverage. For instance, if someone has a $100 deposit, it can work as a $10000 position in a ratio of 100:1. Our leverage is expressed as a ratio, and with $100, we can control over $10000.
But if the trade does not go in our favor, we can get the opposite result. For this reason, risk management is crucial for every investor.
This indicates the amount of money using which investors can trade in their account. This is the money that the investor takes from you as a deposit to open the trading position with the broker.
To get a leverage limit of $100000, our initial deposit must be $1000. The amount of this deposit can be regarded as the margin. The broker takes the margin money from the clients and utilizes the deposit of the super margin to buy financial instruments on an interbank network.
Using the full amount of the position margin can be expressed as the percentage, which can vary from .25% to 10%. Based on this percentage, one should calculate how much amount of leverage he should take from the broker. Beginners may count the amount of the maximum leverage, which should be yield for their trading account. For instance, if the broker needs 5% of the margin, they can have a 20:1 leverage. On the other hand, with a margin of 0.25%, they can get 400:1 leverage.
These are the most important basic factors related to the financial theories in FX. Newbies should study these topics to get the best out of FX by ensuring the highest potential profit.