FOREX Trading
• What Is
FOREX?
• FOREX
Or Futures?
• FOREX
Or Stocks?
•
FOREX Trading for
Beginners
• FOREX
Terms To Know
•
Preparing for FOREX
Trading
• Is
FOREX Trading Risky?
•
The Philosophy of FOREX
Trading
•
FOREX and Fundamental
Analysis
•
Tools for FOREX Trading
•
Trading Strategies for
FOREX
• Trading Systems
for FOREX
•
Reading and Understanding
FOREX Quotes
•
FOREX Profits and Losses
•
FOREX Technical Analysis
Part 1
•
FOREX Technical Analysis
Part 2
•
FOREX Trading Brokers
• The
FOREX Margin
•
What Are Currency Options?
•
What Are FOREX Signals?
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Online FOREX Trading
The FOREX Margin
Without margins, many FOREX traders wouldn't be trading at all. Currencies
are bought in lots, with each lot worth $100,000. But with margins, FOREX
traders are able to purchase lots with a great deal less than $100,000. So,
even though the trader doesn't actually spend $100,000, they are still in
control of that amount on the FOREX market.
In order to buy currencies on Margin, you must have a margin account with
a FOREX broker. This account enables you to literally borrow the necessary
funds from the broker, to make a deposit that is also put towards the purchase
of the currency, and to purchase those $100,000 lots. The amount of money
that you can borrow from the broker is called leverage, and it is usually
given as a ratio, such as 100:1. This ratio means that you control assets
that are worth your deposit times 100, so if your deposit was $1000, you
would control $100,000.
Using margins does not guarantee success. There is still the potential for
losses and profits. You also could lose more than your deposit, but since
the brokers money is also on the line, they will usually end a trade that
goes beyond the deposit, and with some accounts, such as mini accounts, they
have the right to cancel a trade before it ever takes place, if they feel
that it is too risky.
Obviously using margins gives you more buying power in the FOREX market,
which in turn gives you more potential for profits. Let's look at an example:
You deposit $1000, which gives you control of $100,000. You are trading USD,
and this means that your pips, the smallest unit in FOREX currencies, are
worth $10 each. The USD is trading at 1.1562. The price of the USD changes
from 1.1562 to 1.1662, raising 100 pips. 100 x 10 is a profit of $1000.
As with any type of investment, when the potential for profit rises, the
potential for risk also rises. Just as the profits are larger, the losses
will also be larger. For instance, if the price of a currency changes just
one cent in the wrong direction, you would lose $1000 - in the blink of an
eye!
For this reason, it is important to use tools such as stop orders and limit
orders. A stop loss order will automatically close an open position if the
value of a currency drops to or below a certain amount. Limit orders, on
the other hand, are used to automatically exit the market when the value
of a currency rises to a certain value. Also, don't forget that your broker
can close your position as well, and will usually do so when your original
deposit in the margin account has been lost - before the brokers money is
also lost.
Before you do anything, you need to talk with your broker about margins,
and find out exactly how your account and your margin trades will be handled,
how they are monitored, and at what point trades will be stopped or closed.
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