Tackle the Market With These Terms

Slippage is a price change in the stock market over the course of a few seconds, consisting of fractional parts of the order execution. Since stocks never stand still and can change a few times every second, slippage can occur. The more volatile a market is, the more slippage can occur.

Brokers will give investors positive and negative slippage, meaning price changes could be to the investor’s advantage if they understand the market. Here are a few other terms to keep in mind when investing.

What is a margin?

A margin is the amount of money an investor must raise to open or cover a trading position. For leverage products such as Forex & CFDs, the margin is always a fraction of the traded volume on the market, and the leverage effect is the result. The margin is not an order fee or the like. It is the safety margin needed to be able to open/hold a position.

For example, if a person would like to trade one lot of USD/GBP with a deposited lever of 500, they will need a margin amount of only 200 USD (calculation: 100,000: 500 = 200). If they have less than $200 in their trading account, he or she cannot open this position.

What is a margin call?

A margin call can be considered an alarm if the account capital falls below a required margin level. This means that they have little (or no) money left in their trading account to cover open positions, which is usually caused by the market. This runs the risk of losing the open positions at the market value.

What is a Forex broker?

A Forex broker stands between the (private) customer and the interbank market and is there to merge the trade. Investors will always receive a bid and ask price through a Forex broker, to which they can trade. These are delivered by liquidity providers of the interbank market.

Why do investors need a broker?

Trading on the interbank market without a Forex broker is theoretically possible for everyone, but practically impossible because of the very high demands on funds and security requirements. For retail customers and companies, trading is a common choice with a Forex broker. To learn more, see Markus Heitkoetter today.

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