Forex
market is the biggest turnover market in this the investment need is also very
high even though we are having a chance of trading with a minimum amount of
funds, there are several forex brokers who offer a “mini-account” and “micro-account”
for a smaller investment amounting to $50. A mini-account can allow you to
control up a lot of up to $1,000 units of base currency with a margin deposit
of $10 only. This means that you can work with leverage of 2000:1. Your $50 the minimum investment can then allow you to trade up to a mini-lot. In other
instances, the leverage can go as high as 2000:1 or even 2500:1, which means
that you will be required to use a margin deposit lesser than $50.
The
leverage you can enjoy in forex trading is around fifty times higher than what
stock trading can offer. As mandated by United States laws, you can have an
intraday leverage of 4:1 in stock trading if you own an account of at least
$25,000. This is not to say that working with a high level of leverage is
always ideal, because it also involves a high level of risk. If you are willing
to take on that risk, you will have a higher level of flexibility in executing
various strategies in trading forex.
Because
of the leverage, you will be able to enter into speculative trading without having
to invest a lot of your own money. This type of trading is also referred to as “marginal trading.” For instance, your
analysis of the forex market tells you that the price of EUR will eventually
rise against USD. Because of this, you decide to open one lot (or contract) to
buy 10,000 units of EUR with a 1% margin, or leverage of 1:100 at the price
of 1.2760 USD per EUR (or a total of $127,600). After some time, you see that
your original analysis was correct so you decide to close your position at
1.2847 (or a total of $128,470) and earn 87 pips or a total of $870. Almost
all currencies traded in the forex market fluctuate on a daily basis, with an
average of one hundred to one hundred fifty pips. In some instances, the
fluctuation can be even higher than that.
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