Forex Currency Day Trading For Small Investors
Monday, April 6th, 2009The key to make Forex currency day trading available for everyone is the ability to trade on the margin. Without this ability, many small investors would not be able to do business in the Forex market. Now, what is margin trading and how does it work?
A margin account allows a Forex trader to open an account on a small budget, and to control large amounts of money. In effect, opening a margin account with a Forex trading platform allows you to borrow money from the broker to control large currency lots. The beauty of it is that you only risk the money you deposit, not the money you borrow.
How much money you can control with your deposit, is known as leverage and is usually expressed as a ratio. For example, a leverage of 100:1 means that you can control assets worth 100 times your deposit.
Forex currencies are traded in much smaller lots than cash is. If we make an example in Us dollar, a Forex quote will be expressed as 1.3235, in other situations it would have been enough with 1.32
This is because Forex currency day trading are executed in units down to four decimal places, with the smallest unit called a pip. In a standard US $100,000 lot therefore each pip is worth US $10. If our example quote for the American dollar of 1.3235 were to change to 1.3335, that’s 100 pips and a profit or loss of $1000.
Now, if you were holding $1000, it would mean a profit or loss of just US $10. This is unlikely to impress you as an investor. However, if you let your $1,000 work on a 1% margin account to control $100,000, you will be able to gain a $1000 profit, which is far more impressive.
When you work the Forex currency day trading by a margin account, you will also be more sensible when the currency moves the “wrong” way.
Fortunately there are some tools available to help you minimize any potential losses. The most important tool is the stop loss order, which automatically closes your position when the currency reach a level which you preset. (more…)
