Forex Trading Basics: Understanding Spread, Leverage, Margin

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Forex Trading Basics

Before starting the process of buying and selling currency pairs, every trader should get acquainted with some concepts in the Forex market. The thing is, that the likelihood of a successful dealership depends on how solid your basic knowledge is. 

Having the idea of the basics and combining that knowledge with a reliable broker, platform and trading services you can show good results as a beginner. Read the infinox review to focus on trading.

In this article, we are going to talk about such widespread trading terms as spread, leverage, and margin. With an understanding of each of the concepts, the trading activity will become clearer and easier for you.

Let’s start now.

What Is Spread?

The spread in Forex is the difference between the buy and sell prices for every currency pair. This cost is measured by small price movements called pips, which can be seen in the fourth decimal place of a currency pair. The lot size will also determine the total cost of your trade. When you place a trade, your broker will charge you a certain amount per lot traded. 

It is important to remember that the spread and the lot size are just two of the many costs associated with trading Forex

Also note that when trading forex, you will always deal with a variable spread. This means that the difference between the buy and sell price of a currency pair can change at any time.

What Is leverage?

When you trade forex, you can borrow money from the brokerage company to increase the size of your trade. That amount of money is what we call leverage. 

This could lead to bigger profits and losses as well because they are based on the full value of the position. Trading with leverage means that if the market moves in a way that is favorable to you, your profits will be larger. However, if the market moves against you, you could lose all of your money. The reason for it is that profits and losses are based on the full value of the trade and not just the amount of money you put in.

What Is Margin?

The third term you need to know is called margin.

When you margin to trade forex, you are only paying a percentage of the full value of the position to open it. This is important to understand if you want to make money trading forex. Margin trading allows traders to increase their exposure to the market, which means that they can make more money or lose more money depending on how the market moves. But remember that it can also magnify your losses as well as your profits. So be careful.

Conclusion

Spread, leverage and margin are all key concepts to understand when getting started in forex trading. By having a solid understanding of these basics, you’ll be able to use them in practice and make more informed trading decisions. 

Continue to learn about the Forex market and experiment with different strategies to find what works best for you.