Exchange rates on the Forex Market are expressed using the following format:
Base Currency / Quote Currency Sell / Buy
The fundamental characteristic of the buy-sell spread is that it is also the transaction cost for a buy and sell trading operation. For example, in the case of EUR/USD at the exchange rate of 1.2812/1.2815, the transaction cost is three pips. The formula to calculate the transaction cost is as follows:
Transaction Costs = Purchase Price – Sale Price
· CURRENCY CROSS:
A currency cross is any currency pair other than the US dollar. For example, opening a long (buy) EUR/GBP position is equivalent to buying the EUR/USD pair and selling one GBP/USD. Currency pair crosses often have a higher transaction cost.
When you open a margin account with a Forex broker, you must deposit a minimum amount with that broker. This minimum varies between brokers and can be as low as $100 to as high as $100,000.
Each time you open a new position, a certain percentage of your account margin balance will be set aside from the initial required margin for new positions in any currency pair. Having this a current price, and the number of units (or lots) in the position. The lot size always refers to the base currency.
For example, suppose we open a mini account that offers 1:200 leverage or 0.5% margin. Mini accounts trade mini lots. Let’s say a mini lot equals $10,000. If to open a mini lot, instead of having to deposit $10,000 you only need $50 ($10,000 x 0.5% = $50).
The leverage is the proportion of the amount of capital used in a trade that requires a security deposit (margin). It is the ability to control large amounts of money with a small amount of capital. Leverage varies dramatically with different brokers, ranging from 1:2 to 1:400.
At DTP we have agreements with different brokers to operate in Forex to obtain greater or lesser leverage depending on the student’s capital availability.
This occurs when your broker notifies you that your deposit margin has fallen below the minimum required level, because an open position has moved against you.
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