In the last chapter of the Forex market compared with the possibility of earning on the purchase / sale transactions in the exchange office. It has been shown that the Forex has many advantages, allowing to receive significant revenues in the short term. The main advantage of standing in the "bottom of the pyramid" of such earnings is margin trading, which was first introduced on the Forex in 1986
Margin trading allows investors with relatively small capital to operate in the Forex market. Without it, the work of the foreign exchange market by private investors would be impossible, since the minimum value of the contract on the Forex (one lot) is about US $ 100 000. The principle of margin trading is as follows. Exchange intermediaries (Internet broker or dealing company) offers its customers credit for the commission of currency speculation on the security of funds available to the client, called security deposit. The size of the security deposit, as a rule, is 1-5% of the transactions entered into by the customer on the Forex and depends on the provided leverage. Leverage can be 1:20, 1:50, 1: 100 or even 1: 200, depending on the specific conditions of the Internet broker. This means that with a damage deposit of 1000 US dollars, the customer can get a loan of 20 000 to 200 000 dollars for transactions in Forex. Making transactions on large amounts, we can get more profit. But as in this case, transactions are made on borrowed funds, the risk of loss increases in proportion to the probable income. In other words, we can double the amount on our account as quickly as did lose everything.
As we have said, the loan is granted bail security deposit, which is also called asecurity deposit, or margin (hence the name of margin trading). This means that getting a loan for implementation of currency speculation in the Forex market, the client only runs the risk of their funds. The client can not lose more money than is available in its deposit insurance. In this respect, companies providing brokerage services in the international currency market is fully protected.
What is the meaning of Internet broker (dealing company) to provide you a loan to carry out transactions on the Forex? There are several sources of income for these companies, which will be discussed in detail.
First, for every transaction made by the client, the company may be subject to commission. This means that when you close the position from your account automatically debited a certain amount, regardless of whether you brought the deal profit or loss.
Second, these companies earn a spread as provide their clients with a slightly larger compared with the actual market quotes spread. After all, on the orders of the client company makes transactions on its own behalf and for their own funds (as it were given to you on credit) on quotations which she gives the bank. Customers also get quotes adjusted for the best in Internet broker side.
Third, if the client works with a mini or micro lots, it essentially "playing" against Internet broker as mini and micro lots at the inter bank level not traded. In the case of earnings, cash paid directly to the Internet broker, and in the case of loss of your money gets online broker. Since such a scheme of profit dealing companies work, we can conclude that the majority of novice traders working with mini and micro lots, lose their money. In order not to repeat their mistakes and do not be such a "majority" learn forex thoroughly before starting to work with a real account.
Fourth, the company may charge interest on the loan is given to you. This means that the sum of all open positions, passing into the next day (ie, not closed at the end of the day) and earn interest on the loan. At best, it will be the interest rate(the refinancing rate), ie the rate at which the central bank lends to commercial banks in the country. In this case we speak of the banking interest (discussed in detail in the relevant chapter). Different countries have different rate of interest, so, depending on the currency open positions and the type of transaction (purchase or sale), bank interest can either be charged to the client and billed to the client.
With margin trading real currency delivery does not take place, and the value date loses its meaning. Internet trader earns on speculation, opening position for one price, and closing it on the other. Traders can work with any currency pair, not only with the currency of your security deposit. Furthermore, traders can open both long and short positions on the interest of the currency pair. All profits and losses are translated into the currency of the security deposit.
Consider the principle of margin trading as an example. Suppose you are working with small lots and the expected growth of the dollar against the Japanese Yen USD / JPY. Your account is 2000 USD and the size of a mini lot is equivalent to US $ 10 000. Suppose your online broker gives you a leverage of 1:50. This means that in order to open a position, you need a security deposit of 200 US dollars (as a 200 x 50 = 10,000). In the opening of long positions in your account the amount of the security deposit is frozen, and only 1 800 dollars, called the free part of the account , they are at your disposal. On them you can open other positions.
Leaving too little available funds in the account is not recommended. The fact is that once you have opened the position, fluctuations in the dollar the yen may temporarily go to the unfavorable side for you. This means that if you close your position at this moment, it will incur losses that will be debited from your account. Online broker can not let your losses are greater than the size of your account, otherwise it will have to pay "from his pocket." Consequently, as soon as the current (floating) losses reach the point where your score will not be able to cover them, your position will be automatically closed or blocked by the Internet broker (blocking position, lock position, will be discussed in the section University Forex). Such automatic closing position precedes the so-called margin call, which will be described in detail in the next chapter. Thus, the larger the amount in your account, the large fluctuations in the open position, you can withstand, avoiding the onset of margin call. It can change the direction of the course in the right side for you and bring you profit, but if your account is not able to withstand the temporary negative fluctuations, then you are losses.
It should be noted that the more positions (lots) you open, the greater the available funds in your account. If in our example, the US dollar and the Japanese yen, we have opened more than one lot, and four, the security deposit was not $ 200, and 800. Therefore, the free part of the bill would have amounted to 1200 dollars. Since losing temporary fluctuations are now reflected in all four open positions, the chance to get a margin call increases proportionally - four times! In the next chapter, this situation will be reviewed in detail.
Thus, margin trading provides a number of advantages novice Internet trader. With the right approach to trade, it can become a source of increasing your income. But on the other hand, increasing the potential income also means an increased risk of loss. Therefore, margin trading - a "double-edged sword." It can make you very rich, or very poor. Only your intelligence, practices and proportion of forex luck determines your success!
Margin trading allows investors with relatively small capital to operate in the Forex market. Without it, the work of the foreign exchange market by private investors would be impossible, since the minimum value of the contract on the Forex (one lot) is about US $ 100 000. The principle of margin trading is as follows. Exchange intermediaries (Internet broker or dealing company) offers its customers credit for the commission of currency speculation on the security of funds available to the client, called security deposit. The size of the security deposit, as a rule, is 1-5% of the transactions entered into by the customer on the Forex and depends on the provided leverage. Leverage can be 1:20, 1:50, 1: 100 or even 1: 200, depending on the specific conditions of the Internet broker. This means that with a damage deposit of 1000 US dollars, the customer can get a loan of 20 000 to 200 000 dollars for transactions in Forex. Making transactions on large amounts, we can get more profit. But as in this case, transactions are made on borrowed funds, the risk of loss increases in proportion to the probable income. In other words, we can double the amount on our account as quickly as did lose everything.
As we have said, the loan is granted bail security deposit, which is also called asecurity deposit, or margin (hence the name of margin trading). This means that getting a loan for implementation of currency speculation in the Forex market, the client only runs the risk of their funds. The client can not lose more money than is available in its deposit insurance. In this respect, companies providing brokerage services in the international currency market is fully protected.
What is the meaning of Internet broker (dealing company) to provide you a loan to carry out transactions on the Forex? There are several sources of income for these companies, which will be discussed in detail.
First, for every transaction made by the client, the company may be subject to commission. This means that when you close the position from your account automatically debited a certain amount, regardless of whether you brought the deal profit or loss.
Second, these companies earn a spread as provide their clients with a slightly larger compared with the actual market quotes spread. After all, on the orders of the client company makes transactions on its own behalf and for their own funds (as it were given to you on credit) on quotations which she gives the bank. Customers also get quotes adjusted for the best in Internet broker side.
Third, if the client works with a mini or micro lots, it essentially "playing" against Internet broker as mini and micro lots at the inter bank level not traded. In the case of earnings, cash paid directly to the Internet broker, and in the case of loss of your money gets online broker. Since such a scheme of profit dealing companies work, we can conclude that the majority of novice traders working with mini and micro lots, lose their money. In order not to repeat their mistakes and do not be such a "majority" learn forex thoroughly before starting to work with a real account.
Fourth, the company may charge interest on the loan is given to you. This means that the sum of all open positions, passing into the next day (ie, not closed at the end of the day) and earn interest on the loan. At best, it will be the interest rate(the refinancing rate), ie the rate at which the central bank lends to commercial banks in the country. In this case we speak of the banking interest (discussed in detail in the relevant chapter). Different countries have different rate of interest, so, depending on the currency open positions and the type of transaction (purchase or sale), bank interest can either be charged to the client and billed to the client.
With margin trading real currency delivery does not take place, and the value date loses its meaning. Internet trader earns on speculation, opening position for one price, and closing it on the other. Traders can work with any currency pair, not only with the currency of your security deposit. Furthermore, traders can open both long and short positions on the interest of the currency pair. All profits and losses are translated into the currency of the security deposit.
Consider the principle of margin trading as an example. Suppose you are working with small lots and the expected growth of the dollar against the Japanese Yen USD / JPY. Your account is 2000 USD and the size of a mini lot is equivalent to US $ 10 000. Suppose your online broker gives you a leverage of 1:50. This means that in order to open a position, you need a security deposit of 200 US dollars (as a 200 x 50 = 10,000). In the opening of long positions in your account the amount of the security deposit is frozen, and only 1 800 dollars, called the free part of the account , they are at your disposal. On them you can open other positions.
Leaving too little available funds in the account is not recommended. The fact is that once you have opened the position, fluctuations in the dollar the yen may temporarily go to the unfavorable side for you. This means that if you close your position at this moment, it will incur losses that will be debited from your account. Online broker can not let your losses are greater than the size of your account, otherwise it will have to pay "from his pocket." Consequently, as soon as the current (floating) losses reach the point where your score will not be able to cover them, your position will be automatically closed or blocked by the Internet broker (blocking position, lock position, will be discussed in the section University Forex). Such automatic closing position precedes the so-called margin call, which will be described in detail in the next chapter. Thus, the larger the amount in your account, the large fluctuations in the open position, you can withstand, avoiding the onset of margin call. It can change the direction of the course in the right side for you and bring you profit, but if your account is not able to withstand the temporary negative fluctuations, then you are losses.
It should be noted that the more positions (lots) you open, the greater the available funds in your account. If in our example, the US dollar and the Japanese yen, we have opened more than one lot, and four, the security deposit was not $ 200, and 800. Therefore, the free part of the bill would have amounted to 1200 dollars. Since losing temporary fluctuations are now reflected in all four open positions, the chance to get a margin call increases proportionally - four times! In the next chapter, this situation will be reviewed in detail.
Thus, margin trading provides a number of advantages novice Internet trader. With the right approach to trade, it can become a source of increasing your income. But on the other hand, increasing the potential income also means an increased risk of loss. Therefore, margin trading - a "double-edged sword." It can make you very rich, or very poor. Only your intelligence, practices and proportion of forex luck determines your success!
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