Saturday, April 25, 2015

MARGIN

Buying and selling on margin means that you can control a large amount of currency (multiple lots) for a small initial investment.
For most retail trading accounts, dealers give you 100:1 margin. This means that if you “put up” $1,000 US, you can trade $100,000 US worth of currency.
Let’s say you have $2,000 in your trading account. And you would like to place a trade to buy $10,000 (1 mini lot) of GBP/USD.
Your dealer deducts $100 from your account and you are left with a balance of $1,900. That remaining $1,900 that you have in your account balance is used to cover losses that you incur while trading.
If the trade goes against you, and you start to lose money, your trade will be closed with a “margin call” when your losses meet or exceed $1,900 (folks, at $1 per pip, you would have to let the trade go 1,900 pips against you before this

trade closed with a margin call. If you let this happen, you are an idiot). When your trade is closed, the $100 that you “put up” for margin is now placed back into your account balance column, and you are left with that $100 for trading. Or for wiping the tears from your eyes for letting a trade go so long against you.
It’s important that you remember what you just learned above, because every pip equals a certain dollar amount. Remember the table a few pages ago, that showed how much money a pip is worth, based on the size of the trade? When you trade $10,000, each pip equals $1. If you only have a $300 account, you have to trade very conservatively, so you don’t end up blowing up your entire account on a losing trade.
This is why I suggest you trade with a reputable currency dealer that offers what is called “base 10” pricing. This means

that your currency dealer allows you to set the value of a pip — you can even choose to trade small amounts of currency so that each pip equals as little as 10 cents. This means that you can open a small live account, and trade without feeling like you’re going to lose everything. GFT offers this type of trading,






















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