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Be Careful With Margin In Foreign Exchange Melbourne

Unless you’re had some experience trading futures, the concept of using leverage, in trading foreign exchange Melbourne, can be tough to understand. But, it’s not that hard. Just think of what were to happen if you could trade your house every moment of the day and night, with a bank computer keeping tabs on your house’s value in relation to your cash deposit. If the value skyrockets, your cash is safe and you just might sell your house for a fat profit. However, if your neighbourhood starts to go downhill and the value of your house starts to go below what you paid for it, then you can’t sell at a profit and the bank just might call up and ask for more cash on deposit because it’s worried that things are not going to get better (in forex, when that happens, it’s called a “margin call”).
Trade defensively. Stay away from volatile currency pairs in volatile markets. For longer-term trades, reduce your leverage ratios to 50:1 or lower.

Adhere To Caution With Foreign Exchange Melbourne

When you open up a forex account, your bank or broker will request that you send in an initial cash deposit to anchor your trading activities. This is because the price of 1 standard forex contract is 100,000 of whatever currency pair you are trading – a very large sum of money for most people. Enter leveraging. This is where you borrow most of the money needed to trade a contract. In forex, leverage ratios of 100:1 or more are common. This means that a $1 cash margin deposit is controlling the right to trade $100 in a cash position (and, if that $1 cash deposit gets wiped out, so does your position). Hence, the emphasis on calculating your margin position.

Calculating Margins When Trading Foreign Exchange Melbourne

Since, in a leveraged trade position, your bank or broker has more money on line than you do, it’s very interested in the profitability of any outstanding trade position that you have. Thus, on your trading platform, you will notice a little column usually called “cash margin” (or something very similar) that has constantly changing numbers in it. That’s the value of your cash deposit in terms of the profitability of your trade. When your trade is doing great, your cash deposit should be looking peachy. When your trade turns into a dog, your cash deposit starts to get eaten. If your trade continues to back-fire, it’s possible that your cash deposit can get wiped out, producing a margin call.

Making The Best Margins With Foreign Exchange Melbourne

There are 2 ways to make sure that you never get a margin call. First, don’t trade high-flying currency pairs, particularly if the forex weather report (otherwise known as the “global economic calendar”) is forecasting “increased volatility with black clouds forming over London”. Stay low to the ground; use an “Average True Range” indicator, on a daily chart, to find out which currency pairs are not experiencing flights of fancy. Second, cut back on your leverage ratios. No one is forcing you to use anything near a ratio of 100:1, so don’t. Try trading at 50:1. Of course, you won’t make so much money so quickly, but at least you will have a chance of surviving the next forex thunderstorm.

 

 

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