USDCAD is on an uptrend since forming a support at 1.29500. Levels to watch: - The rebound on the support has formed a channel up similar to another two occasions. - The price just hit the MA50 and is consolidating. - The long term pattern is a bearish megaphone. - The bearish megaphone's lower highs are made when the price crosses the MA200. This is a top...
Clearly, leverage should be used judiciously, but even with relatively conservative 10:1 leverage, the 7.5% yield on NZD/JPY pair would translate into a 75% return on an annual basis. So, if you were to hold a 100,000 unit position in NZD/JPY using $5,000 worth of equity, you would earn $9.40 in interest every day. That’s $94 dollars in interest after only 10 days, $940 worth of interest after three months, or $3,760 annually. Not too shabby given the fact that the same amount of money would only earn you $250 in a bank savings account (with a rate of 5% interest) after a whole year. The only real edge the bank account provides is that the $250 return would be risk-free.
When you trade in the foreign exchange spot market (where trading happens immediately or on the spot), you are actually buying and selling two underlying currencies. All currencies are quoted in pairs, because each currency is valued in relation to another. For example, if the EUR/USD pair is quoted as 1.2200 that means it takes $1.22 to purchase one euro.
Between 2003 and the end of 2004, the AUD/USD currency pair offered a positive yield spread of 2.5%. Although this may seem very small, the return would become 25% with the use of 10:1 leverage. During that same time, the Australian dollar also rallied from 56 cents to close at 80 cents against the U.S. dollar, which represented a 42% appreciation in the currency pair. This means that if you were in this trade – and many hedge funds at the time were – you would have not only earned the positive yield, but you would have also seen tremendous capital gains in your underlying investment.
Charts are categorized according to the way price action is depicted as well as the time frame of the period being examined. Imagine that we have a 4-hourly candlestick chart of the EURUSD pair. This means that each candlestick on the graph presents the price data of a four-hour long period in a compact form. What happens inside that time period is irrelevant. If we had chosen an hourly chart, each candlestick on the chart above would be replaced by four different candlesticks.
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Financial leverage is quite different from operating leverage. Operating leverage of a business entity is calculated as a sum total of the amount of fixed costs it bears, whereby the higher the amount of fixed costs, the higher the operating leverage will be. Combine the two and we get the total leverage. So, what does leveraging mean for a business? It is the use of external funds for expansion, startup or asset acquisition. Businesses can also use leveraged equity to raise funds from existing investors.
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.
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.
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Our Interactive plot offers you indicators to detect patterns on Japanese Candlesticks (see the list of Candlestick Patterns below). It’s a recommended tool for those traders that use Candlesticks to take trading decisions. This tool is very useful to get an immediate notification being displayed as soon as the pattern occurs. The Japanese candlestick theory establishes a series of patterns which are statistically previous to potential change or interruption of trends, a turning point in a current trend, etc.
It’s easy for new traders to spend a lot of time researching which trading platform to use or looking for the latest technological solution. The reality is a new trader doesn’t really know what they are going to need until they uncover their trading style. This means it’s better to begin with the basics and focus on learning enough to get started with a minimum of risk.
In addition, there is also no interest on leverage, instead, FX Swaps are usually what it takes to transfer your position overnight. However, unlike regular loans, the swap payments can also be profitable for a trader. To sum up, leverage is a tool that increases the size of the maximum position that can be opened by a trader. Now we have a better understanding of Forex trading leverage, let's see how it works with an example.