With margin forex trading, you can trade hundred thousand dollar lots that aren't even yours to begin with. You simply need to deposit a small cash of several hundred to a few grand. Obviously you would want to know how it is possible to invest a thousand bucks and trade by the hundred thousands in margin trading.
The first step is open a margin account. Brokers let you borrow 10 to 200 times of your cash deposit. If you are thinking of the numbers, think of it this way, you can win big, but you can lose big as well, even bigger than you could handle.
It is indeed a good way to start with if you want to make good money out of Forex trading in less time. But for the completely novice, it is not too advisable. If you are already aware of how the market works and you understand how to make moves, stop losses, safety nets, then you can go ahead and open a margin account.
Remember this; it is easy to borrow money that you otherwise can't afford. And it is tempting to trade money that you didn't earn. So be careful because you might bite off more than you can chew. If things go wrong and you lose big time, you will end up owing your broker a huge amount.
In online spot Forex trading, buying and selling of currencies are done in lots of $100k. As a margin trader, you open an account with your broker and your deposit would serve as collateral in case you incur future losses. Your broker decides how much of a credit line to give you.
The first step in currency trading is buying a currency potentially weaker than the dollar, let's say the currency is 43 to a dollar. Your deposit is 1000 bucks, and your limit is 100k. Naturally, you can borrow 4.3 million of the weak currency. With your 4.3M, you can buy a 100 thousand dollars. Wait until the exchange rate changes and goes up let's say 45 to a dollar. You now sell your dollar at this rate and get 4.5M back. Now you only owe your broker 4.3M, which leaves you with 200k of the weak currency. You then use this to buy dollars which would amount to 4,444.44. With a thousand dollar collateral, you get 4 times your money back.
The first step is open a margin account. Brokers let you borrow 10 to 200 times of your cash deposit. If you are thinking of the numbers, think of it this way, you can win big, but you can lose big as well, even bigger than you could handle.
It is indeed a good way to start with if you want to make good money out of Forex trading in less time. But for the completely novice, it is not too advisable. If you are already aware of how the market works and you understand how to make moves, stop losses, safety nets, then you can go ahead and open a margin account.
Remember this; it is easy to borrow money that you otherwise can't afford. And it is tempting to trade money that you didn't earn. So be careful because you might bite off more than you can chew. If things go wrong and you lose big time, you will end up owing your broker a huge amount.
In online spot Forex trading, buying and selling of currencies are done in lots of $100k. As a margin trader, you open an account with your broker and your deposit would serve as collateral in case you incur future losses. Your broker decides how much of a credit line to give you.
The first step in currency trading is buying a currency potentially weaker than the dollar, let's say the currency is 43 to a dollar. Your deposit is 1000 bucks, and your limit is 100k. Naturally, you can borrow 4.3 million of the weak currency. With your 4.3M, you can buy a 100 thousand dollars. Wait until the exchange rate changes and goes up let's say 45 to a dollar. You now sell your dollar at this rate and get 4.5M back. Now you only owe your broker 4.3M, which leaves you with 200k of the weak currency. You then use this to buy dollars which would amount to 4,444.44. With a thousand dollar collateral, you get 4 times your money back.
About the Author:
It is tempting to trade with money that you didn't earn. But remember, with forex, you may earn a lot, but lose a lot as well. Check out more of our pages on forex trading.
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