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Forex Trading| Article #228 : FOREX TRADING – TRADING ON MARGIN

In this installment of odds and ends and Forex trading, we’re going to discuss trading on margin and some reasons why you might want to get involved in Forex trading, as long as you know what you’re getting yourself into and have some funds that you can risk losing, because make no mistake about it, you can lose money with Forex just like you can on the stock market.

Trading on margin is risky business,  but many people do it. Basically, what trading on margin is, is buying and selling currencies that represent more money than what you actually have in your account. So for example, let’s say you have $1,000 in your account, US money and you want to buy Japanese yen that comes out to $1,500 US money. You can do this, even though you don’t have $1,500 in your account. This is trading on margin.

These margins, percent wise, are very small. They’re usually around 1%. But that 1% translates into an awful lot of money as 1% is actually trading on a level of 100 to 1. So if you have $10,000 in your account, you can trade up to as much as $1,000,000. So 1% is a big number in terms of the actual dollar amounts, depending on how much you have in your account. Now obviously if you only have $100 in your account, you can only trade up to $10,000, which is still a large chunk of change.

By trading on margin, you can make large profits very fast. But there is also the reverse side of this coin where you can lose a lot of money just as fast. The traders who are big risk takers usually trade on margin. This isn’t me. If I have $1000 in my account, that’s all I trade on and only what I can afford to lose. But that goes more into Forex strategy, which is beyond the scope of this series.

So, why trade Forex at all? What are the advantages of it? Is it better than trading on the stock market? Is it safer? Is it more of a sure thing? Just what are the reasons why Forex trading is so attractive?

Well, for starters, as was mention in an earlier article, you can trade Forex 24 hours a day. This gives it a distinct advantage over the stock exchange.
The Forex market is a very liquid one because of the fact that it is dealing in currencies. You will always have buyers and sellers that are willing to trade. The major currencies in this market helps to make it a very stable one.

One of the biggest reasons to trade in Forex is that, unlike the stock market, there are no commissions to be paid to a broker. Remember, Forex trading is one on one. This makes it very attractive to investors.

The 100:1 leverage also makes this very attractive to investors. To be able to have just $100 in your account and trade up to $10,000 in currency makes Forex trading an attractive form of trading.

Because the market itself is always changing, there are always investment opportunities. Even in a falling market, there is the potential for profit because there will always be one currency that will pull a profit if traded for another. You just have to be in the right place at the right time.

In our next installment of Forex trading, we’ll give you some more terms and an example trade scenario so you can see how it’s done.

See you then.

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