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Introduction to Forex – Chapter II. – Leverage and Pricing

Tuesday, Dec 16 2014
Introduction to Forex – Chapter II. – Leverage and Pricing

Before finding your broker and starting to trade, forex trader must introduce himself with basic terms such as Leverage and Pricing. The key concept in Forex is leverage. Leverage  means that you are only required to deposit a small percentage of the full value of your position to place a forex trade. For example if your leverage is 100:1 this means that with as much as $1000,00 you can trade with $100,000,00. Though this is tempting, it conveys both sense of nice possible gains as well as significant risks.  
 


Now, how are currency pair positioned against each other? Let's take EUR/USD pair for example. Base currency in this pair is euro (base currency is always on the left), while counter currency is USD(counter currency is always on the the right). How does Forex function? Forex price movements are triggered by currencies either appreciating in value (strengthening) or depreciating in value (weakening). If the price of EUR/USD for example was to fall, this would indicate that the counter currency (US dollars) was appreciating, whilst the base currency (Euros) was depreciating. Forex is based on traders putting their money according to their beliefs on that whether currency will strengthen or weaken. This belief is based on several technical and fundamental factors more about which you can find out in reading other articles in our education section. 
 
Next Chapter will introduce traders with two major Forex  concepts – Pips and Spreads.

Last modified on Saturday, 01 April 2017
More in this category: « Introduction to Forex – Chapter I. - What is Forex? Introduction to Forex – Chapter III. – Pips and Spreads »

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