Comments on Forex Trading Account Sizes, Lots and Margin Calls.

Forex trading is one of the best business opportunities you can think of joining these days. No other market in the world allows the “Leverage” that the profitable world of currency-trading does. Leverage is all about margin trading. In the Forex market, it is essentially the ratio of the amount used in a trade to the required security deposit needed, by the particular broker you chose to use, for that trade.

Normally, for most brokerages, a margin deposit of just $1,000 allows you to control a $100,000 position in the Forex market. That's 100:1 leverage, or 1%. Or, said in a different way, a “regular full-sized account”, sometimes referred to as a 100k account, allows you to trade with lot sizes equal to $100,000. Each lot is worth $100,000 in currency. So It would only require $1,000 to trade one lot.

This great feature in Forex trading is what makes this market the hottest market to trade in right now. The Forex broker has given you a loan of $99,000 dollars secured only by your $1,000! This is a huge loan and, as you may know by now, this is what allows traders to make extraordinary incomes in this market. And, as you also are probably used to hearing , "leverage is a two-edged sword" , it is what can cause you to lose a lot of money if you trade without rules or Stop-loss orders.

But just as an example, let's say you were a person that likes to trade with reckless abandon, i.e., with no strategy, no common sense, no money- management principles, etc. That’s never recommended for anyone, but being a Forex trader has such great advantages, that even someone with a trading mind like the one described before, will never lose more than what he has placed into a trade. Unlike Futures (Commodity Trading), the market that most people associate with High leverage, you can never have a debit balance when trading Forex. So, despite the greater leverage associated with FX trading, it is still arguably less risky than futures trading. Futures markets are often prone to sudden and dramatic moves, against which you can’t protect yourself, even by trading with protective stops. Your position may be liquidated at a loss, and you’ll be liable for any resulting deficit in the account. But because of the Forex markets great liquidity and 24-hour, continuous trading, dangerous trading gaps and limit moves are very unprobable. Orders are executed quickly, without slippage or partial fills, which is just great. And as it was not enough, there are no margin calls, for your protection, the forex broker's trading platform will automatically close out some or all of your open positions if your account equity, meaning the total floating value of the account, falls below the level required to hold the positions. Think of this as a final, automatic stop, always working on your behalf to prevent a debit balance.

I learned the hard way that the most successful and easy to implement forex systems are the ones that are the easiest to trade and are 100% mechanical. No way around it. I GUARANTEE you, you will learn this eventually without having to lose many years of trading.

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How Much Margin You Need In Forex Trading?

Trading Forex has many advantages which are greatly appreciated by the Forex traders that have already mastered the markets and have improved their incomes and style of life.

One of these great advantages of the Forex markets is the low margins needed in order to be able to place a trade. Something that is also very important for the new and inexperienced traders starting their careers.

This “Margin” is the amount of money you need “to pay” the broker before you enter a trade, and the total amount of it will depend on the size of the trade you are willing to manage. The amount of the margin is calculated as a fixed percentage of this trade amount.

The good news for the Forex traders is that this percentage is usually only 1% of the trade amount and with mini-accounts it can be as low as 0.5% of the total trade. In other words this is what’s called Leverage; and in leverage terms this margin percentages are also viewed as a market having a 100:1 and up to 200:1 leverage. Which is a more than great leverage.

In other words, your broker will make you a loan, a pretty big loan, that you will use to trade and be able to obtain great profits without risking huge amounts of money. It can be seen as this: if you want to trade $100,000 USD, you will only need $1000 USD in order to control this amount of money and the broker will lend you the extra $90,000 USD. This is the power of leverage.

But trading Forex wouldn’t be so great if this huge leverage could turn against you. As it usually happens if you want to trade Futures. When trading forex you can not have a debit balance, your broker will close your account as soon as your margin money runs out. You won’t have loans to repay. Giving you the peace of mind that in a bad trading day, you can at most lose all of your margin but you will never be left with a debit balance to your broker.

So, if you want to enter the great world of forex trading the margin you will need will be around $1000 USD or some more depending on how many trades you will enter. And you can even enter a trade with only $100 USD if you are starting your trading career with a single mini account.

As you can see, there are great reasons to consider trading the forex markets.

Three Important Forex Concepts For New Traders.

As you enter the world of Forex you will find yourself learning and using many new concepts that you may not have used or heard before.

Three of this important concepts that you must understand are what “Pips” are, What “Volume” is and what you do when “Buying” and “Selling Short”. They may look more like four concepts but Buying and Selling are like the two faces on the same coin so we can consider them as a single concept.

Lets first introduce what Pips are. Maybe you have heard or read already how many pips a day you can make using some trading system. In short, currency pairs prices will go out to 4 significant digits. For example; if one currency pair is trading for 1.3451 then an increase to 1.3452 would be a “one-pip” increase in the price of this particular currency. This is an increase of one hundredth of a percent of the value of the currency pair you are trading. And depending the type of account you have, regular or mini, each pip will have a value of $10 or $1. So if you make 10 pips a day with a regular account you would have made $100 and with a mini-account $10.

Now we can talk about the Volume; trading Volume is a quantity that tells traders how much money is being traded at one particular moment. And the forex market is known by its high volume of trading during most of the time markets are open. Some times there can be spikes in the volume during some type of news breaks and during the time New York stock exchange is open. The volume of transactions in Forex, even in a slow day, will always be much higher than the volume traded in other large exchanges at their full capacity.

Now maybe the most obvious of the concepts. Buying refers to the acquisition of a particular currency pair to open a trade. Selling short refers to the selling of a particular currency to open a trade. When you Buy, you are expecting the price of the currency pair to increase with time, i.e., you buy cheap to sell high. In the case of Selling short, it looks a bit more complicated. Here the way to make money is to initially sell a currency pair that you think will lose value in a given period of time and then, once it happened, you will buy it back at the new price but now you can sell it at the previous greater price the currency had when you opened the trade, so you earn the difference in prices. I know it seems kind of tricky, but once you are in front of your trading station it will look much simpler.

Understand well these three concepts and you will start with solid steps you trading career.