Tip 1: What is Leverage in Forex
Tip 1: What is Leverage in Forex
Recently, many are interested in trading on the Forex. In this case, you need knowledge of the basic concepts of the currency market, among which one of the key is the leverage.
Leverage: concept and essence
As a rule, a novice trader does not havenecessary initial deposit for trading on the exchange. Therefore, the trader gives him a loan, which is calculated as a percentage of the amount of the deposit. Such a loan is called a leverage - this is the ratio of the amount of the deposit to the currency volume or the ratio between the amount of collateral and borrowed funds. Trade at the expense of borrowed funds was called marginal. In practice, the minimum leverage is 1: 1, the maximum - reaches 1: 500 (it is called ceiling or maximum permissible). The larger the leverage, the higher the amount of credit. When opening an account on Forex, it is important to choose the correct leverage, because the larger the leverage, the higher the risk of losing deposits. Today, almost every broker enjoys leverage, except for large players, for example, banks. The trader can choose the leverage with which he prefers to work, the minimum value of the leverage for him is 1: 1, but he can choose any shoulder within the established ceiling value. Shoulder 1: 500 is the most aggressive and is suitable only for small deposits (up to 1000 dollars). The most balanced in terms of risk and profitability parameters is the leverage of 1: 100. In addition to the risks, when choosing the leverage it is necessary to take into account such parameter as the duration of the transaction. In short time intervals, the profit from the transaction is the higher, the greater the value of one item. Thus, you can choose a larger amount of leverage. On long intervals it is necessary to choose a shoulder no more than 1:50 or 1: 100.Examples of using leverage
How does leverage work in practice? For example, with a leverage of 1: 100, the broker should have an amount of $ 10, so that he can execute transactions 100 times as much - $ 1000. If the leverage is 1:50, then the broker with the deposit amount of 10 dollars can make transactions to 500, if 1: 1 - then no more than 10 dollars. And what happens with the deposit on Forex? So, by purchasing 1 lot of a currency pair worth 100,000 dollars with a leverage of 1: 100, a trader needs to have a sum of $ 1,000. This value will be fixed on the account and will act as a pledge. It can not be used until the closing of the transaction. A change in the exchange rate will affect the manager's capital if the price increases by 1 point - the funds on the account increase by $ 10, falls - decreases by the same amount. In any case, the trader will not lose more than the size of his deposit ($ 1000).Tip 2: What is Leverage in Forex?
Leverage in Forex is the amount thatThe trader receives a loan from a financial company that enters the market. This gives him the opportunity to open positions with a larger volume than he has on his personal deposit.
Leverage opportunities
Between financial institutions in the market there islarge differences, including the size of the leverage. Someone has a ceiling of 1: 200, someone has a 1: 500. That is, the leverage is the ratio of the traded volume to the volume of the trader's own funds. If the trader has $ 100 on his account, he can make a deal with the lot in 10,000. In this case, the leverage will be 1: 100. If the player places a lot in 5000, then the leverage will be 1:50. From all of the above, we can conclude that the leverage is installed automatically, but can not exceed the maximum installed ceiling.What is fraught with the loss of your deposit in the provision of leverage
Provision of financial company creditthe trader's shoulder does not affect his ability to place strangers, that is, borrowed funds. If his asset is $ 1000, then whatever leverage he has put, there will still be only $ 1000. He can play with a 1: 1, 1: 100 or 1: 500 shoulder, but this will not affect his deposit, but will provide an opportunity to open positions of a larger volume. For example, with a 1: 1 shoulder, a trader can only open on this 1000 $ available to him. With such a volume, the price of one item will be 10 cents. He can merge his entire deposit only if the price goes to his side by 10,000 points. With a 1: 100 shoulder, a player can open a position with a volume of $ 100,000. With such a volume, the price of one item will be $ 10. The risk of merging your entire deposit will appear when the price passes 100 points against the trader. With a shoulder of 1: 500, a position of half a million dollars can be opened, and only 20 points of price movement not in the direction of the trader can mean for him the collapse of everything. The shoulder itself does not yet provide a risk, but does not exclude its possibility.Tip 3: Which leverage should I choose on Forex?
Forex is a large electronic network of banks,institutions and individual traders around the world who speculate on exchange rate fluctuations. Daily activity in the Forex market is more than 50 times higher than the activity on the New York Stock Exchange. Many beginning traders try themselves on Forex, because it is open 24 hours a day, allowing them to trade during the main work. But the role of the shoulder in trading on Forex significantly increases the risks.
A shoulder in any financial market allowsTraders take on a much larger position than usually available with their cash balance. This increases the potential for huge profits, but also increases the risk.
Leverage in Forex trading is necessaryMost traders for high earnings, because exchange rates tend to fluctuate by a fraction of cents. To profit from such a meager movement, you need to have a lot of currency. Almost all Forex brokers extend the high leverage for their customers to facilitate trading experience.
The level of leverage granteddepends on the broker. For example, you can trade with a shoulder of 50: 1, which means you multiply your money balance by 50 to determine the purchasing power of your account. Thus, a Forex account for $ 20,000 can trade 1 million dollars of foreign currency. To determine the number of currency units that you can purchase, multiply the amount of cash you plan to use in trading by 50, and then divide by the exchange rate.
Leverage in Forex trading, in addition toprofits, promises also huge risks. Beginning traders who do not understand them tend to lose almost all of their account balance within a short time, sometimes in a few hours. You have to trade especially small positions, if you are a beginner, so that the shoulder does not take you out of business at the beginning.
Micro accounts
You do not often get the opportunity to demand moreA low shoulder for the brokerage account, but you can open special Forex accounts that offer smaller position sizes. If you are new to the Forex market, you should consider "micro" accounts, which allow you to trade positions in only 1000 units. The amount of money needed to open and trade a micro account is usually less than $ 100, and this is the way to learn Forex without taking on excessive risks.
Tip 4: What are the objectives of operations in the Forex market?
Forex is the market for interbank exchangecurrency at free prices. In Russian, the Forex market often boils down to speculative currency trading to generate revenue. However, speculation is not the only possible goal of operations on Forex.
Speculative and trading operations in the Forex market
Some use the Forex market to exchangeCurrency. For example, transnational corporations that sell goods in one country, and expenses are borne in another. For them, the main advantage of Forex is its convenience. Such transactions are essentially trading. The need for their implementation is determined by economic feasibility. But still the main array of participants in the Forex market are currency speculators. Their goal is to make a profit on the price difference between a currency pair, for example, the euro-dollar.In 2010, the volume of daily operations in the Forex market amounted to $ 4 trillion.Marginal speculative trading is orientedTo fix the current quotations of the currency, but it is carried out without real delivery, i.e. It is not trading. Forex trading is one of high-risk earnings and requires special knowledge and training so that the trader does not lose the deposit. Many speculative transactions are carried out using leverage, since many novice traders do not have the necessary amount to carry out transactions. Leverage is the ratio of the amount of the deposit to the currency volume being purchased. It can be from 1: 1 to 1: 500.
Forex hedging
The purpose of hedging in the Forex market isinsurance of own capital against risks caused by fluctuations in exchange rates. Its meaning is to fix the value of the company's money by entering into transactions in the Forex market. Hedging leads to the disappearance of exchange rate risks. This gives the company the opportunity to plan activities, determine in advance the trading margin, calculate profit, etc.During the period of the financial and economic crisis, the popularity of hedging operations increased substantially.Hedging can be carried out both from a positionBuyer, and seller. Hedging of the buyer is used to reduce the risk associated with a possible increase in the price of the goods. The aim of the seller's hedging is exactly the opposite.
