Margin Trading can be complex. To help you get started, we have compiled a glossary of key terms you should know:
- Margin: The amount a trader must deposit as collateral to open a position. It is essentially a down payment that allows you to trade with borrowed funds.
- Leverage: A mechanism that allows traders to control a larger position than would be possible with their own capital. Leverage can magnify both gains and losses.
- Margin Call: A request from the broker to the trader to deposit additional funds or close positions to meet margin requirements. This occurs when the account equity falls below a certain level.
- Stop out: The process of automatically closing open positions to limit losses and ensure compliance with margin requirements.
- Equity: The total value of a trading account, including deposited capital and ongoing profits or losses.
- Free Margin: The amount available in an account to open new positions or maintain existing ones. It is the equity minus the used margin.
- Pip: The smallest price change that a given exchange rate structure can affect. In Forex trading, this is often the fourth decimal point.
- Stop-Loss: An order designed to limit losses by automatically closing a position when the market reaches a certain price.
- Take-Profit: An order designed to secure profits by automatically closing a position when the market reaches a certain price.
- Volatility: A measure of price movements in a market or security. High volatility means larger price changes and potentially higher risks.