Wednesday, 30 September 2009

Margin Trading

Margin Trading

Foreign exchange trading is normally undertaken on the basis of margin trading or gearing. A relatively small deposit is required in order to control much larger positions in the market. This is possible because when you buy one currency you sell another. Margin requirements are set by your Customer broker and vary from as little as 1% to 10% margin. This means that in order to trade 1,000,000 USD on 1 % margin, you need to place just 10,000 USD by way of security. That same security of 10,000 USD, traded on a 10% margin could control up to 100,000 USD worth of one currency against another currency.
As you can see, with gearing your capital from 10 to 100 times calls for a very disciplined approach to trading as both profit opportunities and potential loss are equal and opposite

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