Leverage

This concept is a must for beginner Forex traders. The leverage is the capital provided by a Forex broker to increase the volume of trades its customers can make.

Example:

  • The face value of a contract or lot equals 100,000 units of the base currency. In the case of EUR/USD, it would be 100,000 euros.
  • If you use a 1:10 leverage rate and have 1,000 euros in your trading account, you can trade a currency pair with a $10,000 position size.
  • If the trade is successful, leverage will maximise your profits by a factor of 10. However, keep in mind that leverage also multiplies your losses to the same degree.

Therefore, leverage should be used with caution, regardless of whether we are talking bout trading for beginners or experts. If your account balance falls below zero euros, you can request the negative balance policy offered by your broker. ESMA regulated brokers offer this protection. Using this protection will mean that your balance cannot move below zero euros, so you will not be indebted to the broker.

Similar Posts

  • Spot Forex

    Byadmin

    This form of Forex trading involves buying and selling the real currency. For example, you can buy a certain amount of pound sterling and exchange it for euros, and then once the value of the pound increases, you can exchange your euros for pounds again, receiving more money compared to what you originally spent on…

  • Dividend

    Byadmin

    A proportion of the earnings of a company that is paid out to its shareholders, the people who own their stock. These dividends are paid out either quarterly (four times per year) or annually (once per year). Not every company pays its shareholders dividends. For example, companies that offer penny stocks likely don’t pay dividends.

  • Margin

    Byadmin

    Margin is the money that is retained in the trading account when opening a trade. However, because the average “Retail Forex Trader” lacks the necessary margin to trade at a volume high enough to make a good profit, many Forex brokers offer their clients access to leverage.

  • Close

    Byadmin

    This is the at which an exchange closes and trading stops. Regular trading hours for the NASDAQ and the NYSE are from 9 a.m. to 4:30 p.m. Eastern time. After-hours trading continues until 8 p.m.

  • Bid

    Byadmin

    The bid is the price traders are willing to pay per share. It is set against the ask price, which is the price sellers are willing to sell their shares for. What do we call the difference between the bid and the ask price? The spread.

  • Spread

    Byadmin

    The spread is the difference between the purchase price and the sale price of a currency pair. For the most popular currency pairs, the spread is often low, sometimes even less than a pip! For pairs that don’t trade as often, the spread tends to be much higher. Before a Forex trade becomes profitable, the value of…