Such is the phrase which traders hate to hear, which is none other than “margin call”, which is a scenario where broker persuades a person (i.e. a trader) to put in more amount of money in his account in a bid to retain an active position. For a trade to remain open or to be in an active trading position, an amount is to be paid for maintenance which is known as maintenance margin and if a person fails to have this much value in cash in his account, he is compelled to surrender his built up position.
What is Margin?
Forex margin criteria are pretty dominant since it refers to the deposits for a bigger game. For instance, on every single deposit of $1, which is against a facility or leverage measuring 50 times, a trader enjoys control over $50. In other words, a trader can trade currency worth $50 for a single dollar amount. This is the thrill and excitement of forex as the outcome can easily be proliferated. On the downside, one should also consider the losses, since losses suffered can also be of that magnitude.
Margin is pretty critical and one needs to be cautious about it, in this trade. At most of the professional agencies, one is not allowed to trade above 10 times of his leverage as is the case of retail trading. But again, if a person is in a resounding position of say $50 million, getting a 10 times leverage will surely be pretty phenomenal than a case where a person goes to trade with $1000 only.
The First Thing You Should Do As A Trader:
Pretty uniquely, we should always scramble to safeguard our trading capital in the first place because if all of the amounts are washed away, one will never be able to set a foot in the market again. Stop losses is for, is widely used else we will be driven out of the market if the outcome of our analysis doesn’t come out as per our expectation.
It becomes pretty pertinent here that margin needs to be kept under control or keeping your margin under control, else one never wants to be erroneous in his calculations for his position in the long run of forex game and fame, but if one has a small pocket, he can be forced to surrender the trade entirely.
Clearly, when we keep track of our margin, trading is given a boost and we also reserve a chance to fall upon us that may open the treasure. For new traders, they can simply put all of the monetary strength into the system, which is an assured way to leave an account invalid. But, under insightful management, (under the guidance of intelligent agency) which adheres to proven statistical ways, gains are bound to bounce into our accounts. Happy Traders !!!
Secure Your Leverage:
To explain how to secure and safeguard our leverage, we have an example here. Suppose a trader maintains $10K in his account with a leverage of 50 times, he clearly has the efficiency to trade for an amount worth $500,000. Or we can say he can decrease either USD or EUR during his increment of $500,000. Then, the margin call will push him out of the market owing to a handful of moves. After this, he will be left with a residual amount in his account as margin amount available to him.
But then, let’s also have an assumption about the trader’s alertness where he invests $25K to establish a position and he needs $500 for a margin that empowers the ability to lose an amount of $9500 before he is forced out of the market. This will call for a series of events to take place against him to allow this to happen.
After this, he will have to stabilize the market in his favour and thus, if he suffers a stop loss of 100 PIP, then with a strength of $25000, he will have to bear a loss of $250 only. Once this loss is registered, a whopping amount of $9750 will still be left in his account, which is prior to costs incurred during trading.
We can also affirm here that with such a favourable scenario, the trader will have the stability to build up an account over a certain period of time. However, such is considered to be among the huge predicaments that forex trading agencies have to face while dealing with new investors who aspire to be reputed traders, but they lack patience. They simply feed themselves with a few stories from certain places, which are of earlier years where people made mammoth profits within a short time period, which can be a case of the separate story with a different time period and applicable circumstances, which may not be the case in the present century of a globalized world.
Such stuff is generally found in sales brochures as well.
Major Lesson To Learn:
In Forex Trading, the major, as well as the measured action we can take, is to keep our position in a reasonable state. Conversely, scores of people fail to accomplish this and end up causing damage to their finances, many a time, fatal and irreparable.
Not surprisingly, forex trading field (as in other markets where levered beta is applicable) the story is absolutely different and concepts and theories as are applied in the stock market, prove completely futile here.
Without a doubt, a trader gathers funds to be in a larger game and percentage wise, currencies frequently lack momentum which does not ensure trading without any type of leverage. Against a specific currency pair and over a certain period of time, say a year, currency prices may rise only by 7%, but when leverage is enjoyed, such doubles up to retain an interest in the trade.
Other than in the stock market, traders simply don’t own any amount, rather movement speculation is there. For instance, if a person has invested in buying shares of a company, say Samsung, he will continue to hold that part of the company no matter how much worse it performs. He is not levered and hence he is not concerned about the margin.
Stunningly, forex trading can simply spell huge profits, all it needs is to be aware of the strength that we hold in terms of capital and insights. And DicnoFX will help you to understand Forex Trading Stratagies.