Making the Best of FX Margin

FX margin trading has been responsible for bringing a lot of people into forex trading. Even before we look at forex trading basics, there are two differences between forex and other markets that need to be highlighted.

Firstly, the intraday trading movement in forex markets is usually about 1%. This is very less compared to equities markets where the movement could be 10% to 20% on a regular basis and sometimes even more. This leads us to the second difference which is the leverage available. The leverage or the loan forex brokers permit their clients is about 100:1. This means an investor trading in forex markets can hold positions worth $100,000 and thus trade in them if he has just about $1000 to give as initial deposit. This loan or leverage is what attracts a lot of people who believe there is money to be made in the forex markets.

Forex pips are the important thing to consider. The pip or percentage in point is the smallest increment for a particular currency pair. For example, a trader dealing with GBP/USD currency pair sees a value of 1.9456 takes a call on buying or selling currency. If the value moves to 1.9462, the pair is said to have moved by six pips. The profit or loss made with movement of one pip is not absolute and depends on the lot size, which was chosen by the investor. Beginners usually go for micro lot sizes, where every pip movement is associated with 10 cents, lost or gained. Standard lot size would associate a value of $10 to every pip. This is slightly risky and hence one has to be careful while taking the shots. The markets can move hundreds of pips on volatile days and this could mean a loss of more than a thousand dollars if you take the wrong decision.