Variable Cost A variable cost is a corporate expense that changes in proportion to how much a company produces or sells. Variable costs increase or decrease depending on a company’s production or sales volume—they rise as production increases and fall as production decreases. Examples of variable costs include a manufacturing company’s costs of raw materials…
Futures market To understand fully what a futures market is, it’s important to understand the basics of futures contracts, the assets traded in these markets. Futures contracts are made in an attempt by producers and suppliers of commodities to avoid market volatility. These producers and suppliers negotiate contracts with an investor who agrees to take on both…
Forward market How forward market works A forward market leads to the creation of forwarding contracts. While forward contracts—like futures contracts—may be used for both hedging and speculation, there are some notable differences between the two. Forward contracts can be customized to fit a customer’s requirements, while futures contracts have standardized features in terms of their contract size and maturity. Forwards execute…
Margin Call To understand a forex margin call, it is essential to know about the interrelated concepts of margin and leverage. Margin and leverage are two sides of the same coin. Margin is the minimum amount of money required to place a leveraged trade. Leverage provides traders with greater exposure to markets without having to fund the…
Currency Revaluation What is Currency Revaluation? In a fixed exchange rate regime, only a decision by a country’s government, such as its central bank, can alter the official value of the currency. Developing economies are more likely to use a fixed-rate system to limit speculation and provide a stable system. A floating rate is the opposite of a…
Currency Depreciation Understanding Currency Depreciation Countries with weak economic fundamentals, such as chronic current account deficits and high rates of inflation, generally have depreciating currencies. Currency depreciation, if orderly and gradual, improves a nation’s export competitiveness and may improve its trade deficit over time. But an abrupt and sizable currency depreciation may scare foreign investors…
Currency Appreciation Currency appreciation in the same context is an increase in the value of the currency. Short-term changes in the value of a currency are reflected in changes in the exchange rate. Basics of Currency Appreciation In a floating rate exchange system, the value of a currency constantly changes based on supply and demand. Therefore, the…
How is forex profit calculated Calculating Profit and Loss How forex profit is calculated? The actual calculation of profit and loss in a position is quite straightforward. To calculate the P&L of a position, what you need is the position size and the number of pips the price has moved. Therefore, the actual profit or…
Equity in Forex The account equity or simply “Equity” represents the current value of your trading account in forex. Equity is the current value of the account and fluctuates with every tick when looking at your trading platform on your screen. It is the sum of your account balance and all floating (unrealized) profits or losses associated with your…
Spread Definition Most forex currency pairs are traded without commission, but the spread is one cost that applies to any trade that you place. Rather than charging a commission, all leveraged trading providers will incorporate a spread into the cost of placing a trade, as they factor in a higher asking price relative to the…