One of the best advantages in Forex Trading is the amount of money you need to place a trade or trading margin is all you will be losing.
What this basically means is that despite the super-high leverage offered by some Forex brokers up to 400:1, you are allowed to trade like you really have $400.000.
Forex trading is still less riskier than Stock or Futures Trading, where you can loose more than you have deposited in your account. This type of leverage does not exist in the equities or futures market
In the Equities or Futures markets, very often, sudden and dramatic moves occur, against which you cannot protect yourself, even by having placed your protective stops.
Your position may be liquidated at a loss, and youíll be liable for any resulting deficit in the account. But because of the FX marketís deep liquidity and 24-hour, continuous trading, dangerous trading gaps and limit moves are almost eliminated.
Orders are executed quickly, without slippage or partial fills. And finally, there are no margin calls. For your protection, the broker will automatically close out some or all of your open positions if your account equity falls below the level required to hold the positions.
Think of this as a final, automatic stop, always working on your behalf to prevent a debit balance.
Currencies are traded in dollar amounts called lots. In Forex trading, with most Brokers, you have the choice between 2 different lot sizes.
1. Standard or Mini Lots
One Standard lot is equal to $100,000 in currency. The margin requirements, using a 400:1 Leverage, would be US$ 250.
In other words, you control $100,000 worth of currency for only 250 US dollars. Just a deposit of $250 with a broker enables me to trade 100,000$ worth of currency.
Still please note that your account size has to be more than the required margin of US 250. If you paid 3 pips or $30, your balance will be around $220. If you would close this trade immediately, you have to sell it at 112.10 for a loss of $ 30.
In fact you could not get executed on this trade, as the brokers trading platform would reject your order, for the reason of having insufficient funds in your account.
2. Currency Pairs
Currencies are always traded in pairs in the Forex. The pairs have a unique notation that expresses what currencies are being traded.
Some of the most common symbols used in Forex are:
USD -The US Dollar
EUR - The Currency Of The European Union Euro
GBP - The British Pound or cable
JPY - The Japanese Yen
CHF - The Swiss Franc
AUD - The Australian Dollar
CAD - The Canadian Dollar
There are symbols for other currencies as well, but these are the most commonly traded ones.
A currency can never be traded by itself. So you can not ever trade the USD by itself. You always need to buy one currency and sell another to make a trade possible.
Some of the most traded currency pairs are:
1. EUR/USD Euro against US Dollar
2. USD/JPY US Dollar against Japanese Yen
3. GBP/USD British Pound against US Dollar
When you place an order to buy the EUR/USD, for instance, you are actually buying the EUR and selling the USD.
If you were to sell the pair, you would be selling the EUR and buying the USD. So if you buy or sell a currency pair, you are buying/selling the base currency.
The best way to remember is, by just thinking of the entire currency pair as one item. If you buy it, you buy the first currency and sell the second currency. If you sell it, you sell the first currency and buy the second currency.
That means you would to be able to short-sell with no restrictions so you could make money when the market drops as well as when it rises.
The problem with traditional stock market or commodity trading is that the market has to go up for you to make money. With Forex trading, you can make money in all directions.
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