General notions

Every kind of exchange in the Forex market has its own abbreviation:

A foreign exchange pair is a correlation of one country’s currency to another’s one. The first foreign exchange in the abbreviation is called base exchange and the second one is called quoted.

Exchange rate determines the quantity of quoted exchange units given for a base exchange unit.

For example, 1.2000 rate of EUR/USD exchange pair means that the amount of USD 1.2000 is given for EUR 1. In this case the minimum change of the rate can be USD 0,0001 and the given amount is called a point. Due to various information influencing different kinds of foreign exchanges, their rates can change by 100–200 points within a day.

 Spread

Simultaneously a trader observes 2 prices that are the ASK price (at which the base exchange can be bought) and the BID price (at which the base exchange can be sold). The difference between these two prices makes a spread, which is a trader’s transaction actual expenses. The analogy can be drawn with regard to any bank exchange office where the foresaid transactions are exercised. However, in such banks, where the said transactions are implemented by persons who are not interested in the Forex market as in a source of income, the difference between these prices (ASK-BID) is too great to effectually gain profit of the rates change. By this very reason the professional foreign exchange trade is carried out through intermediary of special participants of finance markets that are brokerage firms. Brokers’ spread is minimal and practically is not essential for professional participants of the Forex market.

 Trade Volume

The minimum exchange quantity bought during an exchange transaction, which can be accepted by a brokerage firm, makes up 10.000 units (in a point-of-sale terminal the transaction volume is denoted by lots) or 0,1 lot. A standard lot makes up 100.000 units (1 lot).

 Leverage

By means of working balances, that a brokerage firm has, it helps traders to carry out transactions with the volume 100–200 times exceeding their own deposited capital. In other words, if you have 1.000 dollars on your account and 1:200 leverage you can start a transaction 200 times exceeding this sum, which is 200.000 dollars.

Therefore, before the moment, when a transaction is carried out, every trader can decide what transaction volume to choose and what deposit is necessary for it.