Terminology for Forex Trading beginners

Hi Friends,
If you are new to forex trading you should be aware about few Important terms such as :-

Spread

The spread is the difference between the BID and the ASK price in the market quotes. The ASK price is applicable to a BUY order and the BID price is applicable to a SELL order.

CABANA CAPITALS operates using variable spreads, which are spreads that don’t have the same constant value. A variable spread will condense and widen as market conditions and liquidity change.

Leverage

Leverage is the ability to control a large amount of money in the forex markets.

For example: CABANA CAPITALS offers up to 500:1 leverage, which means for every $1 that you have in your trading account; you can trade $500 on the forex market. The same principal applies to all base currencies and leverage amounts.

Leverage gives the trader the ability to make meaningful profits on the normally miniscule daily currency movements, and, at the same time, risk only minimal capital on a given position.

Leverage can exponentially increase your profits as well as your losses so it is crucial that traders take care when using leverage. The larger your position size, the larger your pip value will be and therefore, the greater the impact on your profit/loss (P/L).

Margin

Margin is the term given to the amount of money required in your account in order to open a trade.

Margin is calculated based on the current market quote of the base currency of the trader’s account vs base currency of the trader’s account, the volume requested, and the leverage level of the trader’s account.

Free or available margin is indicated in the MT4 trading terminal.

Margin may be calculated as follows: (Current Market Quote * Volume) / Leverage = $Margin Required

 For example:

• -> A trader wants to open 0.1 (10,000 base currency) lots of EUR/USD at the current market quote of 1.4177 and      with a leverage level of 1:200.
• -> The base currency of the account is USD.
• -> (1.4177 * 10,000) / 200 = $70.89 required to open a 0.1 lot position

Margin Call

A margin call is a warning message that occurs when a trader’s account is running out of sufficient funds to sustain their current open positions on the market.

If the market moves against a trader’s position/s, additional funds will be requested through a "margin call".

If there are insufficient available funds, the trader's open positions will be closed out

If a trader’s Equity (Balance - Open Profit/Loss) falls below a specific margin level which is the amount required to support open positions, then the trader’s positions will automatically be closed. This is to assist in protecting you from negative equity although you should not rely on us providing such protection. It is sensible to maintain adequate funding in your account. 

Hedging

Hedging refers to the opening of a new position in the opposite direction of an existing position on the same instrument.

For example: To hedge a 0.1 lot Buy position on AUD/USD, you would open a 0.1 lot Sell position on AUD/USD

No additional margin is required to hedge a position. It is important to note that one cannot open a new position on an account with insufficient usable margin.

Rollovers/Swaps

Forex trading may also generate interest income as well as capital gains. Since forex is traded in pairs, every trade involves not only two different currencies, but their two different interest rates.

If the interest rate of the currency a trader bought is higher than the interest rate of the currency a trader sold, then the trader will earn interest or “rollover” (positive roll).

If the interest rate on the currency the trader bought is lower than the interest rate on the currency you sold, then the trader will pay rollover (negative roll).

Rollovers/swaps can add a significant extra cost or profit to a trade. The rollover amount increases/decreases as the position size increases/decreases.

Rollovers take place at 5pm EST (New York Time)

But CABANA CAPITALS Donot charge any Swap from their clients.