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.
Banks and/or online trading providers need collateral to ensure that the
investor 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 a
deposit to the trader's account that is intended to cover any currency trading
losses in the future.
Margin enables private investors to trade in markets that have high minimum
units of trading, by allowing traders to hold a much larger position than their
account value. Margin trading also enhances the rate of profit, but similarly
enhances the rate of loss, beyond that taken without leveraging.
Most trading platforms require a "maintenance margin" be deposited by the
trader parallel to the margins deposited for actual trades. The main reason
for 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 cover
When a trader sets a Stop-Loss rate, most market makers cannot guarantee
that the stop-loss will actually be used. For example, if the market for a
particular counter currency had a vertical fall from 1.1850 to 1.1900 between
the 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 is
accounted for, the trader would probably be required to add-up on his initial
margin to finalize the automatically closed transaction. The funds from the
maintenance margin might be used for this purpose.
Important note: Easy-ForexT does NOT require that traders deposit a
maintenance margin. Easy-ForexT guarantees the exact rate (Stop-Loss or
other) as pre-defined by the trader.
If you don't wish to deposit "maintenance margin", in addition to the margin
required for trading, join Easy-ForexT: no "maintenance margin", trade
from as little as $25!