In forex, investors use leverage to profit from the fluctuations in exchange rates between two different countries. The leverage that is achievable in the forex market is one of the highest that investors can obtain. Leverage is activated through a loan that is provided to an investor by the broker that is handling the investor’s or trader’s forex account.
Forex trading involves the sale of a currency, and the simultaneous purchase of another with the purpose of closing the position at a later time with a profit. Unlike in the stock or commodities markets where prices are routinely quoted in USD, the price of a currency can be quoted in any other currency due to the essentially bartering nature of currency transactions where live, as well as historical, forex charts are used to identify trends and entry/exit points for trades.
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When you trade forex, you're effectively borrowing the first currency in the pair to buy or sell the second currency. With a US$5-trillion-a-day market, the liquidity is so deep that liquidity providers—the big banks, basically—allow you to trade with leverage. To trade with leverage, you simply set aside the required margin for your trade size. If you're trading 200:1 leverage, for example, you can trade $2,000 in the market while only setting aside $10 in margin in your trading account. For 50:1 leverage, the same trade size would still only require about £40 in margin. This gives you much more exposure, while keeping your capital investment down.
Finally, it is important to note that in leveraged forex trading, margin privileges are extended to traders in good faith as a way to facilitate more efficient trading of currencies. As such, it is essential that traders maintain at least the minimum margin requirements for all open positions at all times in order to avoid any unexpected liquidation of trading positions.
In contrast, when a trader opens a position that is expected to last for a few minutes or even seconds, they are mainly aiming to extract the maximum amount of profit within a limited time. What is the best forex leveraging in this case? Usually such a person would be aiming to employ high, or in some cases, the highest possible leverage to assure the largest profit is realised, while trading small market fluctuations.
In forex, investors use leverage to profit from the fluctuations in exchange rates between two different countries. The leverage that is achievable in the forex market is one of the highest that investors can obtain. Leverage is activated through a loan that is provided to an investor by the broker that is handling the investor’s or trader’s forex account.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
With Equivolume, you can plot price and volume activity on a single graph, instead of having volume added as an indicator on the side. This tool draws the bars following their traded volume at a precise point in time (the wider the bar, the bigger the volume). That creates a clear visualization of the volume increase or decrease of an asset’s diagram. A very handy feature for those strategies whose key factor is volume. How to change your table into Equivolume
This is why many traders decide to employ gearing, also known as financial leverage, in their trading - so that the size of the trading position and profits could be higher. Let's assume a trader with 1,000 USD on their account balance wants to trade big and their broker is supplying a leverage of 1:500. This way a trader can open a position that is as large as 5 lots, when it is denominated in USD. In other words, 1,000 USD * 500 (the leverage), would equal a maximum size of 500,000 USD for the position. The trader can actually request their orders of 500 times the size of his deposit to be filled.
When a trader decides to trade in the forex market, he or she must first open a margin account with a forex broker. Usually, the amount of leverage provided is either 50:1, 100:1 or 200:1, depending on the broker and the size of the position that the investor is trading. What does this mean? A 50:1 leverage ratio means that the minimum margin requirement for the trader is 1/50 = 2%. A 100:1 ratio means that the trader is required to have at least 1/100 = 1% of the total value of trade available as cash in the trading account, and so on. Standard trading is done on 100,000 units of currency, so for a trade of this size, the leverage provided is usually 50:1 or 100:1. Leverage of 200:1 is usually used for positions of $50,000 or less.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
For example, you might think the Euro (EUR) is going to increase in value against the Australian dollar (AUD) so you could place a trade to buy the EUR/AUD currency pair. If the Euro rises you would make a profit; if it drops you would incur a loss. Conversely, if you thought the Euro was going to decrease in value you could place a trade that would benefit from that price movement.
Leverage simply allows traders to control larger positions with a smaller amount of actual trading funds. In the case of 50:1 leverage (or 2% margin required), for example, $1 in a trading account can control a position worth $50. As a result, leveraged trading can be a "double-edged sword" in that both potential profits as well as potential losses are magnified according to the degree of leverage used.
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