ForexGen Provide you Today With The Most Common Forex Basics To Help You Getting Start In This Profitable World.
What is Leverage ?
This is the one characteristic that makes ‘FOREX’ trading so appealing trading more money than you have in your account. It’s of course a double sword and creates risk. The bulk traders fail at ‘FOREX’ trading because the over leverage their positions. For example, for every $1,000 you have, you can trade 1 lot of $100,000. So if you have $7,000 they may allow you to trade up to $700,000 of forex. Leverage to deal with it you need to enter & exit at optimum risk reward.
What is a margin call ?
A broker’s demand on an investor using margin to deposit additional money or securities so that the margin account in brought up to the minimum maintenance margin. This is sometimes called ‘fed call’ or ‘ maintenance call.You would receive a ‘MARGIN CALL’ from a broker if one or more of the securities you had bought (with borrowed money) decreased in value past a certain point. You would be forced either to deposit more money in the account or to sell some of your assets.
Example #1Let’s say you open a regular Forex account with $3,000 (not a smart idea). You open 1 lot of the EUR/USD, with a margin requirement of $1000. Usable Margin is the money available to open new positions or sustain trading losses. Since you started with $3,000, your usable margin is $3,000. But when you opened 1 lot, which requires a margin requirement of $1,000, your usable margin is now $2,000.
If your losses exceed your usable margin of $1,000 you will get a margin call.
Example #2 Let’s say you open a regular Forex account with $15,000. You open 1 lot of the EUR/USD, with a margin requirement is $1000. Remember, usable margin is the money you have available to open new positions or sustain trading losses. So prior to opening 1 lot, you have a usable margin of $15,000. After you open the trade, you now have $14,000 usable margin and $1,000 of used margin.
If your losses exceed your usable margin of $14,000, you will get a margin call.
