The popularity of Forex trading is partly due to margin accounts with leverage. Without this margin, currency trading would be out of reach of individual investors. Margin accounts are available to trade all types of markets on the rising or falling, you can trade online through a broker using CFDs, currencies with a forex broker, but also raw materials , indices, ETFs, precious metals etc. …
What is the margin and leverage?
Margin accounts allow you to control large amounts of money with a relatively small deposit. Opening a margin account with a forex broker allows you to borrow money to the broker to trade currency lots which generally have a value of $ 100,000. The maximum loan amount is determined by the leverage. A leverage of 100:1 means you can control assets worth 100 times more important to the filing.
With a margin account for 1% (100:1 leverage), so you can trade a standard lot of $ 100,000 for a $ 1,000 deposit. Trading with leverage increases both potential profits but also losses. The trader can quickly lose their initial deposit does not comply with strict risk management. Traditionally, brokers have a system that limits the maximum loss in the initial filing automatically closing positions if the loss is too great. This is called a margin call or stop out.
The benefits of leverage in a Forex trading strategy.
The advantage of the margin account is that it can make profits on small movements of the exchange market. It is possible to make gains even if the market is not very volatile.
Currencies are traded in forex with small units, sometimes up to 5 decimal places. The reference unit is the pip, it represents a variation of 0.0001, the fourth decimal place. For example, if you trade a lot of $ 100,000 on the EUR / USD each pip is worth $ 10. However, the value of a pip is different depending on the cross currency.