• By wealthcapital
• Forex Trading

Are you a Forex Trading beginner? Know these terms first before starting the process. These terms can help you understand what you are signing for when you trade in the forex market.

1. Pip: Pip stands for ‘percentage in point’. It is a numeric value. It denotes profit and loss made by forex traders. Instead of telling the exact value, the traders often refer to the outcome as pips. For example, gaining 40 pips in the last trade simply means that the currency rose by this much value. 
2. Spread: The difference between the Bid price and Ask price is called spread. Bid price and ask price of the underlying asset mean sell price and buy price respectively. The traders will require to incur the cost equal to the spread to invest in a forex trade. 
3. Margins: Margin is the minimum deposit or collateral required to trade. You have to ensure that the amount equal to or more than the margin required is available in your trading account. The margin call alert appears when your account is short of funds needed for completing the trade. It is calculated as 

Lot size/Leverage amount = Margin required

Here, 1 lot is equal to 1, 00, 000 units.

1. Leverage: Leverage is the amount one needs to borrow to trade in the forex market. It is helpful in trading for larger positions in a currency. Usually, the leverage is borrowed from the forex broker. The best leverage ratio for a forex trading beginner is 1:10. 
2. Volume: Volume is equal to number of lots a trader aims to buy or sell. As regards to measuring the trading activity, it refers to the amount of currency that is transacted within a specified time period. 
3. Slippage: It is the difference between the price at which the currency trends and executes at any time. Mostly, in a highly volatile market, the incidence of slippage occurs. It can be 0, negative or positive depending upon the difference between executed and quoted price.

These are the six main terms you will mostly encounter while trading in forex market. These help you understand how currency is transacted in a typical forex trading process.