Always Remember
When you buy you are "long" in Forex language. When you are long you want the currency pair to appreciate in order to make profit. When you sell you are "short". When you are short you want the currency pair to depreciate in order to make profit. The last digit of the price in a currency pair is called pip. In EUR/USD 1.2640 the 0 digit is called pip. More specifically the change of the last digit in one unit is called one pip change. The pip numbers in forex is the indicator of your profit or loss. In Forex you trade the last decimal change in the price of currency pair so it is important to trade big amount of money to realize a nice profit. If you have tried to understand Forex you should have heard the word "margin". What is meant by margin? An official definition is: "The amount of money of collateral deposited by a customer with a broker, by a broker with a clearing member, or by a clearing member with clearinghouse in order to insure the broker or clearinghouse against loss on outstanding futures positions". Sounds like Greek? Well, margin is the amount you deposit for trading. The trading company uses this amount as insurance while you trade. Remember the examples of the currency pairs we used before. In order to make a sufficient profit per pip you have to trade at least 10,000 United State Dollars. With margin you only have to trade 100 USD. The remaining 9,900 are forex brokers’ money. When you realize loss while you are trading you lose only from your 100 USD trading money and forex broker does not lose anything of its 9,900 USD. By the use of margin accounts Forex trader can experience great profits will small amounts of money. Beware: Forex trader can also experience great loss with margin accounts.