Learn forex trading - basic terms part 3 of 3
Trading in the forex market requires education and a clear knowledge, and as a beginner trader, it's very essential to stick to a plan of education first. Forex trading isn't a piece of cake, taking the time to establish your knowledge of trading in forex will help you make profit and manage risk effectively, even if you are a beginner. Having a good understanding of the market and being patient learning forex trading for long time, focusing on the basics first, can be basically very useful for you to achieve success in the forex journey.
Introduction to basic terms of forex - part 3 of 3
Thank you for being a part of our community. So, I won't be boring you with long paragraphs. We will learn in this article some extra-basic terms related to forex trading. If you haven't seen the first two parts, it's very useful for you to read them first before continuing this third part. Anyway, I recommend that you read this article carefully, step by step, because the basic terms are very essential if you want to succeed in this market. let's begin.
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Metatrader 4
Metatrader 4 is a trading platform software for retail forex, developed by "MetaQuotes Software Corporation", a Russian software company established in 2000 and one of the leading developers of software applications for brokerages, banks, and exchanges. Metatrader 4 was first released in 2005, and Metatrader 5 in 2010.
Metatrader 4 has a user-friendly interface that is easy for traders to navigate and use, with advanced chart capabilities, including built-in indicators and a messaging system. Metatrader 4 allows for the automation of trading strategies by using expert advisors (EA), which are programmed scripts (by mql4 programming language) that automatically execute trades based on predefined rules. This software has the ability to customize the appearance and layout to suit user needs, such as adding custom indicators and expert advisors, as well as the ability to create and save custom templates.
Metatrader 4 is used on all devices, including computers, smartphones, and tablets, and is supported by a large number of reputed brokers, which gives traders the confidence to easily access their accounts from anywhere in the world. All this makes the Metatrader 4 trading platform a popular choice among all traders all over the world.
Metatrader 4 desktop
MetaTrader 4 Desktop is a version that is designed to be installed and run on a personal computer with powerful and flexible trading tools that offer a wide range of capabilities and features for traders. Metatrader 4 desktop is one of the most popular trading platforms among forex traders, as it helps them to analyze the forex markets in simple ways.
Another feature of Metatrader 4 Desktop is the automation of trades. Only the desktop version allows traders to create and use expert advisors (EAs), which are programmed scripts that automatically trigger trades based on predefined instructions. which is especially useful for forex traders who are unable to monitor the market constantly. In addition, the built-in messaging system allows traders to communicate in real-time with brokers and other traders.
MetaTrader 4 Desktop is a powerful and versatile trading platform tool, as it becomes the ideal choice for retail forex traders due to its features and advanced charting capabilities, such as automation features, customization options, and over 30 built-in indicators that meet the needs of forex traders.
Metatrader 4 android
MetaTrader 4 for Android is a mobile version developed specifically for use on Android devices. It's useful and considered an ideal choice for forex traders who are on the move and need to access their accounts at any time from anywhere, as long as they have an internet connection. This application can be downloaded from the Play Store and also allows traders to customize the appearance and layout of the charts to suit their individual needs.
As a smartphone screen is small, this makes it impossible for traders to view multiple charts simultaneously using MetaTrader 4 for Android, and it's harder to analyze large amounts of data at once. On the other hand, the desktop version makes it easier to view multiple charts and data points simultaneously. One of the advantages of MetaTrader 4 for Android is its convenience and accessibility when using a smartphone or tablet on the go. But keep in mind that MetaTrader 4 for Android has limited charting and technical analysis capabilities compared to the desktop version.
Metatrader 4 ios
MetaTrader 4 for iOS is a mobile version of trading platform, developed specifically for use on Apple iOS devices such as iPhone and iPad. It has a user-friendly interface and the same features and capabilities as the android and desktop versions, making it easy to navigate and accessible to all traders, as well as the stability and security of the iOS platform, which makes it a popular choice among traders who are constantly on the move.
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Forex quotes
In the forex market, forex quotes are the prices at which currencies can be bought or sold. Forex quotes are typically quoted in pairs like EURUSD and presented in a specific format, with the base currency and bid price listed first and the quote currency and ask price listed second. The value of the base currency is measured in units of the quote currency. Forex quotes are influenced by a variety of factors such as central bank actions, economic indicators, political events, and many other factors that can affect the perceived value of a currency.
Base currency
The base currency is the first currency listed in a currency pair. For example, EUR is the base currency in the EURUSD pair. The base is the currency against which the value of the second currency, the USD, is measured. The value of the second currency is determined by the value of the base currency. I hope you understand the meaning. The most stable and widely traded base currencies are the USD, EUR, JPY, and GBP. We often use the base currency to measure the performance of other currencies. To purchase one unit of the base currency, the bid price represents the amount of the quote currency that must be paid.
Quote currency
The quote currency is the second currency listed in a currency pair. For example, if USD is the quote currency in the EURUSD pair, the quote currency (USD) is the currency against which the value of the base currency (EUR) is measured. For example, in the currency pair EURUSD, the value of the EUR is determined by the value of the USD. If the EURUSD currency pair is quoted at 1.10, it means that 1 euro is equivalent to 1.10 US dollars, the value is variable based on market conditions and other factors such as economic events, political developments, and central bank actions.
Forex indicators
Forex indicators are arithmetic calculations that are concluded from the price and volume of a currency pair to help traders improve trading decisions. Here are some of the most commonly used indicators in the forex market, such as the Fibonacci retracement, the moving average (MA), the Relative Strength Index (RSI), and the Bollinger Bands. Each indicator has its own unique specifications and characteristics. Traders use indicators in combination with other indicators and tools to identify potential reversal points in the market. We will see all these indicators in the next lesson.
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Long position in forex
A long position is the process of buying a currency when you expect it to increase in value so you can sell it at a higher price and make a profit. To open a long position, a trader buys the base currency using the quote currency. For example, when we expect that the Euro will strengthen against the US dollar, we buy the EURUSD currency pair, and therefore we take a long position on the Euro. If the value of the euro increases against the US dollar, we sell the euro for more US dollars than we initially bought it for, making a profit.
Short position in forex
A short position is the process of selling a currency because you expect it to decrease in value so you can buy it back at a lower price and make a profit. To open a short position, a trader sells the base currency in exchange for the quote currency. For example, when we expect that the US dollar will strengthen against the Euro, we sell the EURUSD currency pair, and therefore we take a short position on the Euro. If the value of the euro decreased against the US dollar, we would buy the euro for fewer US dollars than we initially sold it for, making a profit.
Lot size in forex
In forex trading, the "lot size" is the amount of currency units that are being traded in a single transaction, this amount can be variable depending on the type of account and the broker's features. A standard lot size is 100,000 units of the base currency. However, most brokers offer micro and mini lot sizes, allowing the trader to trade smaller amounts of currency. This is beneficial for those who want to manage their risk or those who are just starting out.
Other important factors you need to consider when using lot size in forex trading are leverage and spread, as both can have a significant impact on your profitability. Leverage is the feature that allows us to trade with a larger amount of currency than we have in our account. The spread is the value of the difference between the ask and bid prices of a currency pair. Understanding these two factors before determining lot size and how they affect the profit is crucial for success in the forex market.
Standard lot in forex
A standard lot is the most commonly used lot size in the forex market. It is equivalent to 100,000 units of the base currency. For example EURUSD, a standard lot is 100,000 units of Euro. Trading a standard lot provides a lot of flexibility as it enables the traders to take large positions in the forex market. This is very beneficial for those who have a big amount of capital to invest. Traders should have a clear understanding of their risk management strategies before trading a standard lot.
Standard lot sizes are typically used by professional traders with large funds, such as institutions and banks, who have the necessary capital to handle large trade sizes. However, retail traders can also trade standard lots with the help of leverage offered by the broker, which allows traders to trade with a larger amount of money than they have in their small account by borrowing from the broker. This can be a powerful tool for traders, but it also increases the risk of losing more than the initial investment, so traders should use it with caution. Be careful; a standard lot with leverage can result in a significant increase or decrease in a trader's account balance.
Mini lot in forex
Compared to a standard lot, a mini lot is a smaller lot, as it's equivalent to 10,000 units of the base currency. For example, in EURUSD, a mini lot could be 10,000 units of the currency. This smaller lot size allows traders to manage their risk more effectively by entering the market with a smaller investment. It's particularly useful for new traders with limited capital. Traders can also use leverage with mini lots, which allows them to trade a larger amount of currency than they have in their account. But it's very important to fully understand the concept of leverage and to only use it with caution, because it can increase the risk of losing more money than the initial investment.
Micro lot in forex
A micro lot is equivalent to 1,000 units of the base currency, it's the smallest lot size in forex trading. In EURUSD, a micro lot could be 1,000 units of the base currency. A micro lot size allows traders to manage their risk effectively by keeping their trade size small. It's very useful for those who are just starting out in the forex market. Traders can also use leverage, which allows them to trade with a larger amount of money than they have in their account, but leverage could also increase the risk of losing more money than the initial investment. This is why new traders should understand the concept of leverage..
Margin in forex
In forex, a margin is the amount of money required in the account as a guarantee in order to open and maintain a position; it's the amount of money that a trader should have in the account to maintain a certain level of exposure in the market. In other words, it's the difference between the total value of a position and the amount of money that a trader has in the account. The margin enables traders to enter trades with a smaller amount of money than the total value of the position.
The amount of margin required depends on the leverage and size of the trade. For example, a leverage of 100:1 means that we can open a position worth $100,000 with only $1,000 in our account. In this case, the margin must be at least 1% of the total value of the position. It's very important to keep an eye on the margin level, as it can fluctuate based on price movements. If the margin level falls below the margin call level, the trader's position may be closed automatically by the broker to prevent further losses. This is why traders should well understand the concept of margin to be able to manage the risk and monitor the margin level.
Margin call in forex
A margin call is a situation in which the broker requires the trader by sending a notification to either close some positions being open to bring account balance back above the margin call level, or deposit more money to maintain current trades. All this occurs when a trader's account balance falls below the margin call level, specifically when the value of the trader's open positions is no longer covered by the funds. Most brokers usually set the margin call level tipyccally around 50% to 100% of the required margin.
Margin call can happen in volatile markets or when the trader's risk management strategies are not effective. Keep in mind that a margin call is not limited to only traders who use leverage, even traders who trade with their own money can experience a margin call when their account balance falls below the margin call level. It's important to have a plan and to be prepared to add funds to the account in case of a potential margin call. To avoid a margin call, you should be setting stop-loss orders, which will automatically close a position if the market moves against you by a certain amount.
Free margin in forex
Free margin is the amount of money available in an account to maintain existing positions or open new ones. In other words, a free margin is the difference between the equity and the margin being used. This amount of free margin is constantly fluctuating based on price movements and the size of the positions. This available amount allows traders to have more flexibility in their trading and to take advantage of new opportunities.
When the market moves in our favor, free margin value will increase as well as the value of open positions, and vice versa. When the market moves against our trades, the free margin value will decrease, and the value of open positions will decrease as well. To maintain free margin value, traders should use an effective risk management plan, such as limiting the amount of leverage they use and setting stop-loss orders. They should also pay close attention to their account balance and margin level.
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Conclusion
Overall, MetaTrader 4 is a powerful tool for traders due to its ability to specify lot size, base currency, quote currency, long position, short position and margin in forex, this platform gives traders the full control they need to manage risk and succeed in the journey of forex trading. It's crucial to have a solid strategy of risk management and to always use proper techniques when trading with margin.
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