Forex Trading|How to trade foreign currencies
Jul
29
Filed Under (Currency Trading) by admin
What is Margin?
Margin is the amount of equity that must be maintained in a trading account to keep a position open. It acts as a good faith deposit by the trader to ensure against trading losses. A margin account allows customers to open positions with higher value than the amount of funds they have deposited in their account.
Trading a margin account is also described as trading on a leveraged basis. Most online forex firms offer up to 200 times leverage on a mini contract account. The mini contract size is usually 10,000 currency unit, 1/200th of 10,000 equals to 50 currency unit, meaning only 0.5% margin is required for open positions. Compare to future contracts, which require 10% margin for most contracts, and equities require 50% margin to the average investor and 10% margin to the professional equity traders, foreign exchange market offers the highest leverage among the other trading instruments.
The equity in excess of the margin requirement in a trading account acts as a cushion for the trader. If the trader loses on a position to the point that equity is below the minimum margin requirement, meaning the cushion has completely worn out, then a margin call will result. Generally, in online forex trading, the trader must deposit more funds before the margin call or the position will be closed. Since no calls are issued before the liquidation, the margin call is better known as ‘margin out’ in this case. The account will be margined out, meaning all the positions will be closed, once the equity falls below the margin requirement.
Example:
Account A
Account Equity: 500USD
Contract Size: 10,000
Currency: EUR/USD
Spread: 3 pips
Margin Requirement: 50USD
Leverage: 1,000:50 = 200:1
Pips to margin out (1 lot): 447
Consider Account A, the margin requirement for 1 lot of position is 50USD. The free usable margin is Account Equity – (Margin Requirement + Spread) = 500 – (50 + 3) = 447. The account will be margined out if EUR/USD moves 447 pips against the position.
Why Margin Requirement Matters?
Leverage is a double-edged sword. With proper usage, it can enhance customers’ funds to generate quick returns and increase the potential return of an investment. However, without proper risk management, it can lead to quick and large losses. Consider the following example:
Account:A
Account Equity:500USD
Contract Size:10,000
Currency:EUR/USD
Spread:3 pips
Margin Requirement:50USD
Leverage:1,000:50 = 200:1
Pips to margin out (1 lot):447
Max no. of lots at one time:9
Pips to margin out (max lots):3
Account:B
Account Equity:500USD
Contract Size:10,000
Currency:EUR/USD
Spread:3 pips
Margin Requirement:200USD
Leverage:1,000:200 = 50:1
Pips to margin out (1 lot):297
Max no. of lots at one time:2
Pips to margin out (max lots):47
The initial conditions of the accounts are the same, except for account A, the margin requirement per lot is 50USD and account B is 200USD.
Free usable margin = Account Equity – (Margin Requirement + Spread)no. of lots
Maximum number of lots open at one time = Account Equity / (margin requirement + spread)
In account A, for 1 lot of position, the free usable margin is 500 – (50+3) = 447, which means the account will be margined out if EUR/USD moves 447 pips against the position. The max number of lots open at one time = (500/(50+3)) = 9 lots, with 500 – (50+3)9 = 23USD free usable margin left for 9 lots. Once EUR/USD moves 23/9 = 3 pips against the positions, there would be not enough usable margin and account A will be margined out.
In account B, the free usable margin for 1 lot is 500 – (200+3) = 297, which means the account will be margined out if EUR/USD moves 297 pips against the position. The max number of lots open at one time = (500/(200+3)) =2 lots, with 500 – (200+3)*2 = 94USD free usable margin for 2 lots. If EUR/USD moves 94/2 = 47 pips against the positions, account B would be margined out.
With 1 lot of open position, account A has 447USD usable margin as cushion before being margined out, while account B only as 297USD. However, with more usable margin, account A has higher probability of being over traded. As shown in the above example, the more open positions, the easier is the account to get margin out.
Most forex trading firms offer customizable leverage; traders can choose the leverage ratio they feel most comfortable with. Customers should be aware of how to guard against over trading an account and managing overall risk.
By: Actionforex.com
Margin is the amount of equity that must be maintained in a trading account to keep a position open. It acts as a good faith deposit by the trader to ensure against trading losses. A margin account allows customers to open positions with higher value than the amount of funds they have deposited in their account.
Trading a margin account is also described as trading on a leveraged basis. Most online forex firms offer up to 200 times leverage on a mini contract account. The mini contract size is usually 10,000 currency unit, 1/200th of 10,000 equals to 50 currency unit, meaning only 0.5% margin is required for open positions. Compare to future contracts, which require 10% margin for most contracts, and equities require 50% margin to the average investor and 10% margin to the professional equity traders, foreign exchange market offers the highest leverage among the other trading instruments.
The equity in excess of the margin requirement in a trading account acts as a cushion for the trader. If the trader loses on a position to the point that equity is below the minimum margin requirement, meaning the cushion has completely worn out, then a margin call will result. Generally, in online forex trading, the trader must deposit more funds before the margin call or the position will be closed. Since no calls are issued before the liquidation, the margin call is better known as ‘margin out’ in this case. The account will be margined out, meaning all the positions will be closed, once the equity falls below the margin requirement.
Example:
Account A
Account Equity: 500USD
Contract Size: 10,000
Currency: EUR/USD
Spread: 3 pips
Margin Requirement: 50USD
Leverage: 1,000:50 = 200:1
Pips to margin out (1 lot): 447
Consider Account A, the margin requirement for 1 lot of position is 50USD. The free usable margin is Account Equity – (Margin Requirement + Spread) = 500 – (50 + 3) = 447. The account will be margined out if EUR/USD moves 447 pips against the position.
Why Margin Requirement Matters?
Leverage is a double-edged sword. With proper usage, it can enhance customers’ funds to generate quick returns and increase the potential return of an investment. However, without proper risk management, it can lead to quick and large losses. Consider the following example:
Account:A
Account Equity:500USD
Contract Size:10,000
Currency:EUR/USD
Spread:3 pips
Margin Requirement:50USD
Leverage:1,000:50 = 200:1
Pips to margin out (1 lot):447
Max no. of lots at one time:9
Pips to margin out (max lots):3
Account:B
Account Equity:500USD
Contract Size:10,000
Currency:EUR/USD
Spread:3 pips
Margin Requirement:200USD
Leverage:1,000:200 = 50:1
Pips to margin out (1 lot):297
Max no. of lots at one time:2
Pips to margin out (max lots):47
The initial conditions of the accounts are the same, except for account A, the margin requirement per lot is 50USD and account B is 200USD.
Free usable margin = Account Equity – (Margin Requirement + Spread)no. of lots
Maximum number of lots open at one time = Account Equity / (margin requirement + spread)
In account A, for 1 lot of position, the free usable margin is 500 – (50+3) = 447, which means the account will be margined out if EUR/USD moves 447 pips against the position. The max number of lots open at one time = (500/(50+3)) = 9 lots, with 500 – (50+3)9 = 23USD free usable margin left for 9 lots. Once EUR/USD moves 23/9 = 3 pips against the positions, there would be not enough usable margin and account A will be margined out.
In account B, the free usable margin for 1 lot is 500 – (200+3) = 297, which means the account will be margined out if EUR/USD moves 297 pips against the position. The max number of lots open at one time = (500/(200+3)) =2 lots, with 500 – (200+3)*2 = 94USD free usable margin for 2 lots. If EUR/USD moves 94/2 = 47 pips against the positions, account B would be margined out.
With 1 lot of open position, account A has 447USD usable margin as cushion before being margined out, while account B only as 297USD. However, with more usable margin, account A has higher probability of being over traded. As shown in the above example, the more open positions, the easier is the account to get margin out.
Most forex trading firms offer customizable leverage; traders can choose the leverage ratio they feel most comfortable with. Customers should be aware of how to guard against over trading an account and managing overall risk.
By: Actionforex.com
Jul
22
Filed Under (Trading Strategies) by admin
I am unemployed. I have tried Forex trading but I am just breaking even. Do you have any tips on how to succeed? Thank you!
Thank you all, in particular Suzanne for all the tips and Lucas for the Robot. That robot thing is intriguing. Is it for real? Anybody heard of forexapt.com?
Jul
22
Filed Under (Trading USD-EUR) by admin
Newcomers often wonder where they can get Forex trading signals. But when you ask an operator experienced, he is likely to reply that time has everything.
There is definitely a correct time for each activity. This goes for Forex trading as well. Playing in Forex on the financial market and out, is best done at a right time and place. When you do that, you are sure to maximize profits and lower your losses.
Want to hear a golden rule on Forex trades? It is getting to know beforehand when the markets are about to move. Each Forex traders should know this. The basics of forex trades are knowing when to invest and when to sell, and you should welcome any tool that helps you know these facts.
Perhaps you have heard the saying, “knowledge is power”. Are you a believer in that? Forex signals are part of an operator knowledge, as well as other relevant facts. You need to stay informed of various movements in the market, they are alerts that prompt you invest or to sell . Keep track of these movements in the market because it can help a lot to make good decisions relating to trading Forex.
Forex is a market where the landscape is changing rapidly recently, these signals are Forex “on the money”. There are quick changes in markets since the events have a major impact on trading Forex. What you should stay informed of is financial changes taking place in this world. You can find many-many Forex signals services, each offering real-time information on trends in the trade, so how do you choose?
Use the net to get online sources. You can do some of your own research, collect data, and choose that which satisfies you totally.
Most companies that offer Forex signals are based on the subscription system. Typically, as soon as you open a trade account, you will be approached by some. However, these accounts are very expensive to set up and maintain. These are known, like all commercial transactions or accounts.
Besides, the free exchange of signals Forex only keep track of the four pairs of negotiation, namely: USD eur, ghp-USD USD-jpy and USD-en. Other currency twins are not available at all times, so you have to find different sources for those.
Forex Subscription-based services have signals costs. Usually basic services offer e-mail notifications of the entry / exit opportunities. They also provide comprehensive options, whether by SMS or by cell phone. Data charts are available for advanced functions. Many of them are cheap, while some others are expensive. So, it will depend entirely on your ability what you subscribe to
As a trader, never depend totally on signals. Forex signals are here to provide points of entry or exit for you to get more long-term benefits. We should not expect instant results, we must depend more on our own discretion. Finally, success depends on how you react to some of the information provided to you by these signals.
You must have a good history with Forex markets, and have a thought out game plan. It is better to rely on that than on any signal from any company.
By: Abhishek Agarwal
There is definitely a correct time for each activity. This goes for Forex trading as well. Playing in Forex on the financial market and out, is best done at a right time and place. When you do that, you are sure to maximize profits and lower your losses.
Want to hear a golden rule on Forex trades? It is getting to know beforehand when the markets are about to move. Each Forex traders should know this. The basics of forex trades are knowing when to invest and when to sell, and you should welcome any tool that helps you know these facts.
Perhaps you have heard the saying, “knowledge is power”. Are you a believer in that? Forex signals are part of an operator knowledge, as well as other relevant facts. You need to stay informed of various movements in the market, they are alerts that prompt you invest or to sell . Keep track of these movements in the market because it can help a lot to make good decisions relating to trading Forex.
Forex is a market where the landscape is changing rapidly recently, these signals are Forex “on the money”. There are quick changes in markets since the events have a major impact on trading Forex. What you should stay informed of is financial changes taking place in this world. You can find many-many Forex signals services, each offering real-time information on trends in the trade, so how do you choose?
Use the net to get online sources. You can do some of your own research, collect data, and choose that which satisfies you totally.
Most companies that offer Forex signals are based on the subscription system. Typically, as soon as you open a trade account, you will be approached by some. However, these accounts are very expensive to set up and maintain. These are known, like all commercial transactions or accounts.
Besides, the free exchange of signals Forex only keep track of the four pairs of negotiation, namely: USD eur, ghp-USD USD-jpy and USD-en. Other currency twins are not available at all times, so you have to find different sources for those.
Forex Subscription-based services have signals costs. Usually basic services offer e-mail notifications of the entry / exit opportunities. They also provide comprehensive options, whether by SMS or by cell phone. Data charts are available for advanced functions. Many of them are cheap, while some others are expensive. So, it will depend entirely on your ability what you subscribe to
As a trader, never depend totally on signals. Forex signals are here to provide points of entry or exit for you to get more long-term benefits. We should not expect instant results, we must depend more on our own discretion. Finally, success depends on how you react to some of the information provided to you by these signals.
You must have a good history with Forex markets, and have a thought out game plan. It is better to rely on that than on any signal from any company.
By: Abhishek Agarwal
Jul
22
Filed Under (Trading Strategies) by admin
There are so many, what are the best Forex Trading Platforms, particularly for a new trader?
Jul
21
Filed Under (Trading XAU) by admin
??????”????Crazy Safari(1991)”
By: terryzenkireturn
By: terryzenkireturn
Jul
20
Filed Under (Trading Strategies) by admin
Can someone explain in detail how forex trading can be done from home in order to earn some additional income? Too, what is involved or needed? How much is needed as an investment?
Jul
16
Filed Under (Investing) by admin
What Rate Cuts Can Be Expected
The US Fed has not exactly been forthcoming in its rate cuts; rather, it lowered rates very reluctantly in 2007. It has given only what the currency markets have already priced in. The basic reason for their hesitation is the desire to contain inflation ? the very same concern that weighs heavily on all other central banks in the world. The Fed wants to make certain inflation remains under control. Doing that has been more difficult because of the high energy prices coupled with the weaker dollar. Thankfully, indications of energy prices reaching $100 per barrel are no longer in circulation.
The market expects the Fed to further ease interest rates another 25 to 50bp lower; however, this is not the only option. They may want to further explore their other options, including the Term Auction Facility they introduced in December. But these options, including a cut in the discount rate, are limited especially since LIBOR rates have remained at high levels. Even as late as December, Treasuries posted one-day increases that were the highest seen in the last three years.
Who Else Might Make A Play
In the final two months of 2007, the crumbling markets were shored up by massive investments from sovereign funds. Temasek Holdings, owned by Singapore, invested $4.4 billion in Merrill Lynch; state-owned Abu Dhabi Investment Authority plowed $7.5 billion into Citigroup; and, China Investment Corporation invested $5 billion in Morgan Stanley. Sovereign wealth funds have been in existence since the mid-twentieth century. From an estimated $500 billion total size in 1990, these funds are now thought to be worth $3 trillion. The states of Norway, Singapore, the U.A.E., Saudi Arabia, Kuwait and China have between them an estimated $2 trillion available for immediate spending. Given eight more years, these funds may have total capital of $12 trillion, continuously built up from their natural resources and foreign exchange reserves. Investments from sovereign wealth funds have ? and probably will continue ? to be significant factors in helping the US financial markets recover.
How the 2008 US Presidential Elections May Affect Financial Markets
The historical trend shows more bullishness for the US dollar when Republicans gain leadership than Democrats. Whether this trend will hold depends on how close the 2008 elections will turn out. The Stock Traders Almanac makes the general observation that election years show modestly positive growth in the US stock market. In the last five decades, election years have shown a 9.2% average gain in the Dow Jones index.
By: Andre Miller
The US Fed has not exactly been forthcoming in its rate cuts; rather, it lowered rates very reluctantly in 2007. It has given only what the currency markets have already priced in. The basic reason for their hesitation is the desire to contain inflation ? the very same concern that weighs heavily on all other central banks in the world. The Fed wants to make certain inflation remains under control. Doing that has been more difficult because of the high energy prices coupled with the weaker dollar. Thankfully, indications of energy prices reaching $100 per barrel are no longer in circulation.
The market expects the Fed to further ease interest rates another 25 to 50bp lower; however, this is not the only option. They may want to further explore their other options, including the Term Auction Facility they introduced in December. But these options, including a cut in the discount rate, are limited especially since LIBOR rates have remained at high levels. Even as late as December, Treasuries posted one-day increases that were the highest seen in the last three years.
Who Else Might Make A Play
In the final two months of 2007, the crumbling markets were shored up by massive investments from sovereign funds. Temasek Holdings, owned by Singapore, invested $4.4 billion in Merrill Lynch; state-owned Abu Dhabi Investment Authority plowed $7.5 billion into Citigroup; and, China Investment Corporation invested $5 billion in Morgan Stanley. Sovereign wealth funds have been in existence since the mid-twentieth century. From an estimated $500 billion total size in 1990, these funds are now thought to be worth $3 trillion. The states of Norway, Singapore, the U.A.E., Saudi Arabia, Kuwait and China have between them an estimated $2 trillion available for immediate spending. Given eight more years, these funds may have total capital of $12 trillion, continuously built up from their natural resources and foreign exchange reserves. Investments from sovereign wealth funds have ? and probably will continue ? to be significant factors in helping the US financial markets recover.
How the 2008 US Presidential Elections May Affect Financial Markets
The historical trend shows more bullishness for the US dollar when Republicans gain leadership than Democrats. Whether this trend will hold depends on how close the 2008 elections will turn out. The Stock Traders Almanac makes the general observation that election years show modestly positive growth in the US stock market. In the last five decades, election years have shown a 9.2% average gain in the Dow Jones index.
By: Andre Miller
Is there anything to learn before starting forex trading for success? Or it is totally depend on one’s fate?
Jul
12
Filed Under (Trading XAU) by admin
Kem lam xau
By: hangsbv
By: hangsbv
Jul
09
Filed Under (Currency Trading) by admin
To read a forex price quote consisting of two different currencies you have to note that the first currency is known as the base currency while the second currency is called the quote currency. Another point of note is that the first currency value is always 1 (one).
To further illustrate, the price quote or exchange rate tells us how much of the quote currency we must pay to obtain one unit of the base currency. Likewise. The price quote or exchange rate tells us how much we will receive in the quote currency by selling one unit of the base currency.
For example, if you wanted to buy the EUR/USD a price quote of EUR/USD of 1.3550 means that 1 EURO dollar (EUR) is equal to 1.3550 US dollars (USD). This means that to buy 1 EURO dollar (EUR), you would have to pay 1.3550 US dollars (USD).
In the above case, if the currency pair’s prices rises (i.e. the EUR/USD price goes up) it would mean that the EURO dollar (EUR) has appreciated against the US dollar (USD) which has weakened. If the EUR/USD has now risen to 1.3850 from 1.3550 it will mean that the EURO dollar is stronger now compared to the US dollar (USD) as 1 EURO dollar can buy more US dollars (USD) than before.
Likewise if the EUR/USD has now dropped to 1.3350 from 1.3550 it will mean that the EURO dollar has become weaker relative to the US dollars as 1 EURO dollar now can only purchase lesser US dollars
To be continue… on Forex Options Trading – How To Read FOREX Price Quotes (Part 3 of 3)
By: Timothy Stevens
To further illustrate, the price quote or exchange rate tells us how much of the quote currency we must pay to obtain one unit of the base currency. Likewise. The price quote or exchange rate tells us how much we will receive in the quote currency by selling one unit of the base currency.
For example, if you wanted to buy the EUR/USD a price quote of EUR/USD of 1.3550 means that 1 EURO dollar (EUR) is equal to 1.3550 US dollars (USD). This means that to buy 1 EURO dollar (EUR), you would have to pay 1.3550 US dollars (USD).
In the above case, if the currency pair’s prices rises (i.e. the EUR/USD price goes up) it would mean that the EURO dollar (EUR) has appreciated against the US dollar (USD) which has weakened. If the EUR/USD has now risen to 1.3850 from 1.3550 it will mean that the EURO dollar is stronger now compared to the US dollar (USD) as 1 EURO dollar can buy more US dollars (USD) than before.
Likewise if the EUR/USD has now dropped to 1.3350 from 1.3550 it will mean that the EURO dollar has become weaker relative to the US dollars as 1 EURO dollar now can only purchase lesser US dollars
To be continue… on Forex Options Trading – How To Read FOREX Price Quotes (Part 3 of 3)
By: Timothy Stevens
