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Learn Forex Trading and Make Money > Forex for Beginners > Margin Trading in Forex - Leverage
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Margin Trading - Leverage The leverage or margin provided by some forex brokers may goes up to 400:1. This means that you require only 1/400 or .25% in balance to open a position (plus the floating gains/losses. in ) Most forex brokers offer 100:1, where every forex trader need only to 1% in balance to open a trading position. The standard lot size in the forex market is $100,000 USD.
For example, in the above trading position, the trader needs only 1% in balance or $1,000 USD. Of course it is not advisable to open a position with such limited funds in our forex trading balance. If the trade goes against our trader, the position is to be closed by the forex broker.
A Pip Margin Call A margin call occurs when the balance of the forex trading account falls below the maintenance margin (capital required to open one position, 1% when the leverage used is 100:1, 2% when leverage used is 50:1, and so on). . At this moment, the forex broker sells off (or buys back in the case of short positions) all your forex trades, leaving the forex trader “theoretically” with the maintenance margin. Margin calls occur when forex money management is not correctly applied, . How does a forex trade happen? The forex trader, after an extensive analysis, decides there is a higher probability of the British pound to go up - . He decides to go long risking 30 pips and having a target (reward) of 60 pips. If the forex market goes against our forex trader he will lose 30 pips, on the other hand, if the market goes in the intended way, he will gain 60 pips. The actual quote for the pound is 1.8532/27, 4 pips spread. Our trader gets long at 1.8538 (ask). The forex market gets to either our profit target - take profit order - or our risk point - stop loss level - we will have to sell it at the bid price (the price our forex broker is willing to buy our position back, In order to make 40 pips in , our take profit level should be placed at 1.8590 (bid price.) If our target gets hit, the market ran 64 pips (60 pips plus the 4 pip spread.) If our stop loss level is hit, the market ran 30 pips against us. It’s very important to understand every feature of forex trading process. Start first from the very basic concepts, then move on to more complex issues such as trading systems, forex trading psychology, forex trade and risk management, and so on. And make sure you master every single feature before entering in a live forex trading account. |
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Description: In contrast with other financial markets where you require to deposit the full amount of money traded, in the forex trading market you require only a margin deposit
Viewed: 130
Added: 14 December 2009
Added by: hatem1971
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