Forex Margin Trading – The Dangers Of Trading On The Margin
Why is gaining too much leverage through forex margin trading a dangerous thing?
If you have already find out about the concept of leverage in forex by trading on the margin, you will no doubt understand that it’s rather a powerful tool. An average margined account will offer you a 1% margin, therefore you only have to deposit 1% of the total value of your trades (with your broker lending you the other 99%).
Lets say your account deals in a large amount $100,000 each, as a way to buy a lot at this point you only need to invest $1000 of your profit that trade (1%). Now this deal might seem like an amazing offer, also it does permit the ‘average joe’ to have a little bit of the action without needing a few hundred thousand dollars to spare. However, there’s one big caveat you mustn’t overlook:
Trading on a margin of 1% means a fall of 1% of one’s trade will put you out of your game!
Forex margin trading allows you to minimise your financial risk, however the flip side of the coin is that if the value of your trade dropped by the $1000 you submit it will be automatically closed out by the broker. This is called a ‘margin call’.
As you can see, a small movement in the incorrect direction could easily wipe out your trade, and see your $1000 gone in a couple of seconds. If the trade moved enough in the proper direction to cover the spread then you might make a good profit, but you would need to be absolutely certain in your prediction to create such a risky trade.
Forex margin trading on a 1% margin is risky business, but by getting the balance right between your level of risk and how heavily leveraged you account is it is possible to gain an edge. This advantage could be the difference between success and failure.
Important: Gaining An Advantage in Forex Margin Trading is key to Your Sucess!
Learn more about forex trading strategies [http://forexmentalist.com/forextrading/forex-trading-strategies-leveraged-trading/] and margins, and know the pitfalls the brokers try to hide!