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ECN

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ECN/STP – What is it?

ECN is an abbreviation for “Electronic Communication Network”

STP is an abbreviation for “Straight Through Processing”

Generally, these 2 terms mean exactly the same thing… Here’s how:

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CFDs

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CFD or Contract For Difference means the difference between when the a trade is entered and exited. This would be the rather difficult explanation.

The easier explanation of a CFD is that it mirrors the movement of the asset (e.g., STOCK) underlying it.

CFDs made EASY

At this moment Google’s stock is now being traded at a price of roughly $460.

In order to trade this stock in the exchange, you need to purchase 100 stocks.

What does this MEAN?

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Margin

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Margin

Margin is very similar to Leverage, as it provides investors with the ability to trade with ‘borrowed’ capital.  It is seemingly a ‘good faith deposit’ to ensure contractual obligations of both buyers and sellers.

While leverage is expressed in certain ratios (e.g. 1:200 or 1:400), margin is expressed in percentage of a position size (e.g., 1% or 5% of 10,000 of base currency units) and is defined as the percentage of a security’s value that may be used as collateral of a loan to finance its purchase.

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Interest Rates

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Interest Rates (Rollover, Swap Rate)

In forex you are always trading one currency versus the other, and thus your trading is affected, at most times, by the interest rates of these two currencies.
Interest rate affects traders keeping their positions opened overnight. If you are day-trading you are not affected by interest rates at all.
Terminology of forex interest rates sometimes states it as Swap, Rollover or Rate.


Interest Rate – how does it work?
You are long EUR/USD, meaning you are buying Euros and selling US Dollars. Hypothetically, if the interest rate on the Euro currency is 4.00% and the interest rate on the US Dollar is only 2.50%, then you are literally profiting 1.50% per year.

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Leverage

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Leverage

Leverage is defined as the amount of borrowed capital to increase the potential of your investment. In other words trading on leverage increases your buying power, but if used improperly, it may also increase your losses.

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Spread

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Spread

Spread is a common expression in the forex market.  It illustrates the difference between the bid and the ask price of a specific currency pair. For the trader, the spread comprises the cost of doing business.
The most popular and liquid currency pair being traded is the Euro versus the US Dollar, also known as EUR/USD. In most cases, the spread on this pair would be 3 pips.

 

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