Course Terms & Concepts - Forex Market 2

6. Understanding Margin

Liquidate

In financial markets the term liquid and its various forms take on a few different meanings; in this instance if a broker’s trading agreement refers to the possibility that a trade will be liquidated, that is to say that the trade will be close, and unrealized profit or loss will become realized profit or loss.

Margin Call

Traditionally, a margin call occurs when a brokerage actually contacts a trader and informs them that their trade has moved against them enough to require a deposit of more margin (if they wish to keep the position open). In the FX market the term is more often used to describe a situation in which a brokerage firm actually closes the trader’s position, usually without warning. Most brokerages have set margin call levels that traders are informed of when opening their account, it is generally safe to assume that if your position reaches this level, your broker will automatically close the trade.

Mini Account

In the off-exchange retail Forex market, a mini account refers to an account in which the full value of one single mini lot or contract is equal to $10,000 (10% the value of a standard account). Traders can of course set trades that are multiple mini lots, or even fractional mini lots, but a single mini contract will always be equal to $10,000. Many retail FX brokers offer 200-1 leverage on mini accounts; though traders can have their leverage set to a lower level.

Pip

The term PIP stands for Percentage In Point. Essentially, Forex traders are after profit in terms of pips; not Dollars or Yen or Euros, but pips. The reason for this is because the pip is the last digit represented in a currency’s price quote; it is the smallest increment that a currency’s value can rise or decline. Traders look at currency price moves in terms of how many pips, and then translate that into a value that makes sense in their base currency. In a standard account, for example, the average pip value is around $10 USD.

Standard Account

The term PIP stands for Percentage In Point. Essentially, Forex traders are after profit in terms of pips; not Dollars or Yen or Euros, but pips. The reason for this is because the pip is the last digit represented in a currency’s price quote; it is the smallest increment that a currency’s value can rise or decline. Traders look at currency price moves in terms of how many pips, and then translate that into a value that makes sense in their base currency. In a standard account, for example, the average pip value is around $10 USD.