Here’s a breakdown of the basic Forex terminology you’ll encounter when using the HFM (formerly known as HotForex) trading platform. Create an account to start earning!!
1. Currency Pair
In Forex, currencies are traded in pairs. The first is the base currency, and the second is the quote currency. For example, in EUR/USD:
- EUR (Euro) is the base currency.
- USD (U.S. Dollar) is the quoted currency.
The value of a currency pair shows how much of the quote currency you need to buy one unit of the base currency.
2. Bid and Ask Price
- Bid Price: The price at which HFM (or any broker) is willing to buy the base currency in exchange for the quote currency. This is the price you’ll get if you sell the pair.
- Ask Price: The price at which HFM is willing to sell the base currency in exchange for the quote currency. This is the price you pay to buy the currency pair.
For example, in a EUR/USD price quote of 1.1200/1.1205:
- 1.1200 is the bid price (sell EUR, buy USD).
- 1.1205 is the ask price (buy EUR, sell USD).
3. Spread
The spread is the difference between the bid and ask prices. HFM makes money by charging this difference, which acts as the broker’s fee for facilitating the trade.
- Example: If the EUR/USD bid price is 1.1200 and the ask price is 1.1205, the spread is 5 pips.
4. Pip
A pip (short for “percentage in point”) is the smallest price movement in the Forex market. For most currency pairs, a pip is equivalent to 0.0001 of the quoted price. For example, if the EUR/USD moves from 1.1200 to 1.1201, that is a 1-pip movement.
- HFM allows traders to monitor pip movements closely using their charting tools.
5. Leverage
Leverage allows you to control a larger position with a smaller amount of capital. HFM offers leverage options to traders, such as 1:100 or 1:500.
- For example, with a 1:100 leverage, you can control a $100,000 position with just $1,000 of your own funds.
Leverage increases both potential profits and potential losses, so it should be used carefully.
6. Margin
Margin refers to the amount of money required to open a leveraged position. It is essentially a deposit held by HFM to cover any potential losses.
- Example: If you’re trading with a leverage of 1:100 and want to open a $10,000 trade, you’ll need $100 in margin (1% of the position).
7. Lot Size
In Forex trading, a lot is the unit used to measure the size of a trade. There are three common lot sizes:
- Standard lot: 100,000 units of the base currency.
- Mini lot: 10,000 units of the base currency.
- Micro lot: 1,000 units of the base currency.
HFM allows traders to choose their preferred lot sizes based on their trading strategy and account size.
