There are many methods to apply leverage through which you may increase the actual purchasing power of one’s investment, and Forex margin trading is one of them. This method basically allows you to control large amounts of money by utilizing merely a small sum. Generally, currency values won’t rise or drop over a certain percentage in just a set time frame, and this is what makes this approach viable. In practice, you can trade on the margin by utilizing merely a bit, which would cover the difference between the current price and the possible future lowest value, practically loaning the difference from your broker.
The concept behind Forex margin trading may be encountered in futures or stock trading as well. However, because of the particularities of the 마진거래 exchange market, your leverage will undoubtedly be far greater when coping with currencies. You can control as much as around 200 times your actual account balance – of course, with respect to the terms imposed by your broker. Obviously that this may enable you to turn big profits, however you’re also risking more. Usually of the thumb, the chance factor increases as you utilize more leverage.
To provide you with a typical example of leverage, consider the following scenario:
The going exchange rate between the pound sterling and the U.S. dollar is GBP/USD 1.71 ($1.71 for starters pound sterling). You expect the relative value of the U.S. dollar to go up, and buy $100,000. A couple of days later, the going rate is GBP/USD 1.66 – the pound sterling has dropped, and one pound is now worth only $1.66. If you’re to trade your dollars back for pounds, you’d obtain 2.9% of one’s investment as profit (less the spread); that is, a $2,900 profit from the transaction.
In fact, it’s unlikely that you will be trading six digit amounts – the majority of us simply cannot afford to trade on this scale. And that is where we can use the principle behind Forex margin trading. You only need to provide the total amount which would cover the losses if the dollar could have dropped instead of rising in the last example – when you yourself have the $2,900 in your account, the broker will guarantee the rest of the $97,100 for the purchase.
Currently, many brokers cope with limited risk amounts – which means that they handle accounts which automatically stop the trades when you yourself have lost your funds, effectively steering clear of the trader from losing more than they have through disastrous margin calls.
This Forex margin trading approach to using leverage is extremely common in currency trading nowadays. It’s most likely that you will get it done in the near future without so much as just one seriously considered it – however, you must always keep in mind the high risks of a large amount of leverage, and it is preferred that there is a constant use the maximum margin allowed by your broker.