As Forex traders we need to know and understand common terms use in this industry. Live traders are usually mixing up terms and they often get confused. Here are some words we should know when we plan to trade currency.
- Leverage. This is the amount of money you can borrow from brokers to maximize your profit and losses. The higher leverage you can get equals the bigger the trades you can get which can make you earn more. Leverage adds power to whatever existing capital you have.
- Margin. Traders usually define this as a “good faith deposit”. This is also known do be your down payment to a trade. Depending on how much leverage a trader has will lower your margin requirement. Minimum margin requirement is 2%. This is the amount of money required in your account to continue to trade.
Types of Margin:
- Initial Margin – This is the upfront margin you need to open a position
- Free Margin – This is the left over margin you have to open a future position. This is based on subtracting the initial margin from your free margin.