Basic Introduction to the Forex - Part 3

Leverage Now the question arises, how do i trade large sums of money on the forex, and this is the answer Some brokers offer you leverage, that is they offer you a larger sum of money to trade with, which is a multiple of what you keep in deposit, or in good faith. For example, you give a broker $100, and he allows you to trade $10,000 on the forex. That is called leverage. And that is how you gain such huge profits ! The money kept in security is called margin, and this varies from broker to broker. In the about case, the margin is 1%, that is the broker requires you to keep $1 security for every $100 you want to trade. However, if your account money falls below the margin requirements, the broker may close some or all of your open positions and this is the much dreaded MARGIN CALL This prevents your account from going into negative balance. Usable Margin is the Margin that is available to open new positions, whereas the Margin used already in existing positions is called Used Margin. Example, your account has a Margin of $ 1,000. You open a position which requires a margin of $ 500. The Usable Margin prior to opening the position is $ 1,000. But as soon as you open the position, the Usable Margin is $ 500. And the Used Margin is $ 500 Conventionally, Leverage is express in a ratio like 100:1, 200:1 The relationship between Leverage and Margin is Leverage = 100 / Margin Percent Continue to Basic Introduction to the Forex - Part 4 (Types of Orders) Go Back to The Forex