Forex Trading On The Margin
For many small investors the world of forex trading has become a reality because of the ability to trade on the margin. But just what does this mean?
Currency trades are conducted in what most of us would consider to be large lots which we would never be able to afford to trade in on our own. However, a margin account allows the small investor to participate in large trading lots by effectively borrowing money from a broker. For example, if your broker allows you to operate a trading account with a leverage of 100:1 then this means that you can participate in trading lots of up to 100 times the sum of money in your account. In other words a 1% margin account into which you deposit $1,000 will allow you to participate in trades of the standard forex lot size of $100,000.
Margin accounts can of course increase your profits considerably, but they can also magnify your losses and so will be closely monitored by your broker. For many the temptation to trade beyond their means is ever present with a margin account and you need to remember that you still need to learn the art of trading and to spend time working with a simulated forex trading account before diving into trading with either your own or your broker’s money.