Forex high leverage strategy definition 26. Forex graph forex high leverage strategypage and interpretation 26. Forex fundamental news analysis article 26.
Forex fibo pivot indicator tradestation 26. Forex factory recent strength indicator 26. Forex factory market direction tomorrow 26. This market determines the foreign exchange rate. The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market works through financial institutions, and operates on several levels.
One of the advantages of trading markets such as forex is the availability of leverage. When used correctly, leverage can help you to achieve much bigger returns than you’d normally be able to with your own money. As with all things, leverage needs to be used carefully and in moderation. When someone buys a company stock it’s usually a simple transaction. They pay an amount to a broker and in return receive a fixed number of shares. Each share has a certain value and that value can change according to the market. With this kind of transaction, the buyer puts all of the money up front.
Forex, futures, and many other financial instruments are usually traded on margin. This means when you trade them you don’t need to put all of the money up front. Instead, the broker asks for a certain percentage to cover the transaction. This amount is held on margin and allows what’s called leveraged trading. What you are doing in effect is selling US dollars, and with the proceeds buying euros. When you enter into the contract, the spot exchange rate determines precisely how many euros you can buy for the dollars you sell. The variable in this transaction is the 1.
Suppose tomorrow the exchange rate is 1. To sell your position you’d need to sell the euros and buy back the dollars. Now if you wanted to sell the euros at today’s spot rate you’d receive USD 160,000. You could use USD 150,000 of this to purchase back the US dollars. On day one, the forex contract had a net value of zero. On day two it had a value of USD 10,000.
If the exchange rate had moved the other way, the value could have been minus USD 10,000. The sold dollars exactly matched the bought euros at the start. But the value changed over time according to the exchange rate between euros and US dollars giving the profit or loss. Margin Unlike the share purchase example the transaction didn’t have any initial value.
In this imaginary deal, you didn’t have to put in any of your own money up front. Under this scenario, you could just walk away if the exchange rate moved the wrong way and it resulted in a loss. To prevent this, brokers require something called margin. This is money you hold in your account to cover your trading positions.