Margin

Banks and/or online trading providers need collateral to ensure that

theinvestor can pay in the event of a loss. The collateral is called the

�margin� and is also known as minimum security in Forex markets.

In practice, it is adeposit to the trader's account that is intended to

cover any currency tradinglosses in the future.Margin enables

private investors to trade in markets that have high minimumunits 

of trading, by allowing traders to hold a much larger position
 than theiraccount value. Margin trading also enhances the rate of

profit, but  similarlyenhances the rate of loss, beyond that taken
without leveraging.

Maintenance Margin

Most trading platforms require a �maintenance margin�
be deposited by thetrader parallel to the margins deposited
for actual trades. The main reasonfor this is to ensure
the necessary amount is available in the event of a �gap�
or �slippage� in rates. Maintenance margins are also used to
coveradministrative costs.When a trader sets a Stop-Loss rate,
most market makers cannot guaranteethat the stop-loss will actually
be used. For example, if the market for aparticular counter currency
had a vertical fall from 1.1850 to 1.1900 betweenthe close and

opening of the market, and the trader had a stop-loss of 1.1875
,at which rate would the deal be closed? No matter how the rate
slippage isaccounted for, the trader would probably be required
to add-up on his initialmargin to finalize the automatically closed
transaction. The funds from themaintenance margin might be used for this purpose. 

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Spreads

 It is the difference between BUY and SELL, or BID and ASK.

 In other words, this is the difference between the market maker's

"selling" price (to its clients) and the price the market maker

"buys" it from its clients. If an investor buys a currency and

immediately sells it (and thus there is no change in the rate of

exchange), the investor will lose money. The reason for this is

 �the spread�.  At any given moment, the amount that will be

received in the counter currency when selling a unit of base

currency will be lower than the amount of counter currency which

 is required to purchase a unit of base currency.  For instance,

 the EUR/USD bid/ask currency rates at your bank may be

 1.2015/1.3015, representing a spread of 1,000 pips

 (percentage in points; one pip = 0.0001).  Such a rate is much

higher than the bid/ask currency rates that online Forex investors

 commonly encounter, such as 1.2015/1.2020, with a spread of 5 pips.

 In general, smaller spreads are better for Forex investors since

 they require a smaller movement in exchange rates in order to

profit from a trade.

Prices, Quotes and Indications

The price of a currency (in terms of the counter currency), is called �Quote�.

 There are two kinds of quotes in the Forex market: Direct Quote:

 the price for 1 US dollar in terms of the other currency, e.g. �

 Japanese Yen, Canadian dollar, etc. Indirect Quote: the price of

 1 unit of a currency in terms of US dollars, e.g. � British pound,

 euro. The market maker provides the investor with a quote.

  The quote is the price the market maker will honor when the deal

 is executed.  This is unlike an �indication� by the market maker,

 which informs the trader about the market price level, but is not

 the final rate for a deal. Cross rates � any quote which is not

 against the US dollar is called �cross�. For example, GBP/JPY is

a cross rate, since it is calculated via the US dollar. Here is how

 the GBP/JPY rate is calculated:

 GBP/USD = 1.7464;

USD/JPY = 112.29;

Therefore:  GBP/JPY = 112.29 x 1.7464 = 196.10

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Exchange rate

Because currencies are traded in pairs and exchanged one against
  the other when traded, the rate at which they are exchanged is
 called the exchange rate. The majority of currencies are traded
against the US dollar (USD), which is traded more than any other
 currency. The four currencies traded most frequently after
 the US dollar are the euro (EUR), the Japanese yen (JPY),
the British pound sterling (GBP) and the Swiss franc (CHF). These
 five currencies make up the majority of the market and are called
 the major currencies or �the Majors�. Some sources also include
 the Australian dollar (AUD) within the group of major currencies.
 The first currency in the exchange pair is referred to as the base
 currency. The second currency is the counter currency or quote
currency. The counter or quote currency is thus the numerator
 in the ratio, and the base currency is the denominator.
 The exchange rate tells a buyer how much of the counter or quote
currency must be paid to obtain one unit of the base currency.
The exchange rate also tells a seller how much is received in
 the counter or quote currency when selling one unit of the base
currency. For example, an exchange rate for EUR/USD of 1.2083
specifies to the buyer of euros that 1.2083 USD must be paid to
obtain 1 euro

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