forex for dummies

When an traders uses a margin account in trading a forex,they actually borrowing to increase the possible return on investment. Usually, many traders will use margin accounts when they want to invest in equities by using the leverage of borrowed money to control a larger position than the amount they'd otherwise by able to control with their own invested capital.

Traders interested in trading in the forex markets must first sign up with either a regular broker . Once an investor finds a proper broker, a margin account must be set up. A forex margin account is very similar to an equities margin account, the investor is taking a short-term loan from the broker. The loan is equal to the amount of leverage the investor is taking on.

Before the traders start to trade, they must pay a sum of deposit into their margin account. The amount that needs to be deposited depends on the margin percentage that is agreed between the traders and the broker upon registration or opening the account. For accounts that will be trading in 100,000 currency units or more, the margin percentage is usually either 1% or 2%. So, for an traders who wants to trade $100,000, a 1% margin would mean that $1,000 needs to be deposited into the account. The remaining 99% is provided by the broker. No interest is paid directly on this borrowed amount.However,if the traders does not close their position on the following day or before the delivery date, it will have to be rolled over.Forex brokey may charge the interest depending on the investor's position (long or short) and the short-term interest rates of the underlying currencies.

In a margin account, the broker uses the $1,000 as security. If the trader's position get worse and they losses approach $1,000, the broker may initiate a margin call. When this occurs, the broker will usually instruct the traders to either deposit more money into the account or to close out the position to limit the risk to both parties.