Features of margin trading
Transactions in Forex are carried out according to the principle of the margin trading. The margin trading has a number of features that has made it so popular.
A small start-up capital allows executing a transaction with the amount which is in excess of the real one in many times even in tens and hundreds times. This excess is called leverage.
In general the trading is carried out without the real money supply. Thus an opportunity to open positions for both buying and selling foreign currencies is provided for anybody
By the way opening an account and transferring money on a deposit is the first thing that should be done before the start – up of trading. These funds can allow you to execute deals with foreign currencies using the whole power of your leverage of course. To cut a long story short a deposit is the main tool of a trader besides his intelligence of course.
One of the terms of Forex trading is the leverage which I have already mentioned above. In other words it’s the coefficient, which shows how many times the size of your open position can exceed the amount of your deposit. Different companies provide different leverages but as usual it ranges from 10 to 100.
Now let’s go on with trading terms. The margin is a part of the deposit required to open and maintain a position. The minimum level of margin is the limiting value of the deposit at which a broker has to close the client’s position forcibly in compliance with the current rate. It goes without saying that different brokers set different value for the minimum level of mortgage such as from 50% to 10% of the required margin for example.
Now let’s consider the mechanism of trading in details. If you have an open position on the current balance of your trade account then you can have an opportunity to see how it is constantly changing in response to changes in exchange rates. And if the size of the floating loss will be equal to the difference of balance and the minimum amount of margin then the position will be forcibly closed by the urgent interference of a broker. Otherwise, a broker would have to assume part of your loss.
A dealing center constantly monitors the status of your account. This is done in order to not allow you to lose more than you have placed on your trading deposit. To avoid a forced closure, you should not open too big positions for your deposit. You should to be on time with closing your loss – making positions. Moreover it is highly recommended for you to put the stop order right on your open position in order to avoid big losses.
As in every other niche of life foreign exchange market needs some knowledge.
Surely, one can start forex trading and be quite successful in it. But sooner or later the losses will come. This is when you might think “Why didn’t I start with a nice forex book?”
This does not imply that after reading even the best forex book you will start making money, but this knowledge will save you from many dangers.