Part 2/12 of a CFD Trading Online Course.

Part 1/12 of a CFD Trading Online Course.

FX margin trading is a very powerful tool which when used correctly can make you some serious cash when you trade. FX margin trading allows you to use a small deposit of cash to control tens of thousands of dollars of a currency pair.

Various FX broker will allow you to trade anywhere from 10 to 200 times your deposit, much more than any other form of trading. A simple example is you can have $500 in your account and depending on your broker you would be able to trade $100,000 worth of a currency pair. So, you make profits on $100,000 instead of only $500. This opportunity also has it’s downside, it can also lead to large losses. Before you begin margin trading you should be making consistently profitable trades.

When you are at this stage you can begin leveraging which will lead to greater profits. Leveraging involves taking advantage of currency trending to maximize your profits and by using stop loss orders to minimize your risk. This is very easy to do. Each time you make 30 Pips, you then add a new position and place a stop loss 30 pips back from your entry point. This means you are risking nothing. You keep adding more positions and moving your stop loss order up so you only risk 30 Pips per lot. This simply adds more positions which means more profits and limiting your risk to a maximum of 30 Pips. You simply keep doing this until price turns against you and your stop loss is triggered.

When done correctly FX margin trading is a highly profitable avenue. It allows you to take a few hundred dollars and turn it into a huge annual income.

Forex trading allow traders who to and sell currencies 24 hours a day. Forex margin trading gives these traders the capability of dealing 10 to 200 times the value of their deposit in any currency pair in their currency trades. Put simply forex margin trading means you can get 10 to 200 times the worth of your money when you trade in the Forex market, however this opportunity comes with it’s share of risks.

In order ot avoid these risk as much as possible, you need to be equipped with knowledge and analysis. The 2 major types of analysis in forex trading are fundamental and technical analysis.

Fundamental analysis: interprets forex data from charts, maps and graphs. Fundamental analysis can be used for examining long term changes on its effects to the present of future forex trading markets.

Technical analysis: interprets forex data by means of foreign currency alerts and signals. Technical analysis is composed of mathematical equations and numerical calculations, which are used to study instant changes to the existing exchange markets.

The best way to used use fundamental and technical analysis is, use them together as they both have an important role to play. Fundamental analysis can be used early in order to make good predictions and decisions based on technical analysis of present forex information. Using both forms of analysis will give you the best chance in maximizing your margin trading profits.

Margin trading gives traders the opportunity to make more money in less time, however it is not advised for beginners. Once you are familiar with the stock market and how it works, only then should you begin to look at margin trading.

In normal trading you trade using things you own. The difference with margin trading is that you are borrowing what you trade with from your broker. This increases the potential for things to go wrong. It is very simple to borrow more than you can afford to pay back, due to the fact you do not have to pay for it initially. It is important to be aware that if anything goes wrong you can end up owing a lot of money in a small period of time. This is the very reason why novie traders should not start margin trading. With other forms of stock trading you can only lose what you have. For example, you have $1,000 in shares and if everything goes wrong you only lose that $1,000. If you are involved in margin trading however, you can end up losing a lot more.

Guidelines When Starting Margin Trading:

• Find out as much as you can about how it works and understand the potential for losses.
• Learn and understand leverage. Leverage put simply is borrowing from your broker without holding the shares yourself. An example of when you would want to use leverage is if you were holding $1,000 in shares and you think you are going to be making a good profit on them, you know you could make more profit if you had more shares. By borrowing from your broker you can access this increased profit.
• Understand if the market is good you can indeed make more money by margin trading, however if the market does not go your way it will lead to your losses mounting up quickly. This is how you can end up owing a lot of money.
• It is important to know exactly what you are doing and not to be tempted by ifs and maybes when you are margin trading.

Forex margin trading is simply a forex trading account which is ‘leveraged’. This means effectively for every $1 you have as your deposit you have up to $100 to invest. A typical account is set up in such a way that you would pay your forex broker a security deposit which ranges from 0.25% to 5%. The usual security deposit for a $100,000 lot (unit of currency) is usually 1% ($1,000).

A working example?

Let’s take a standard lot of $100,000 against EUR (USD against Euros). If the spot for buying EUR is 1.0269 this means that for selling $100,000 you get 100,000 x 1.0269 = 102,690 EUR. If you expected the dollar to decrease in price over the period of time you would be holding the EUR, you would sell dollars. Let’s say you have sold dollars through your broker at 11.15 a.m GMT and the price at 4.10 p.m. GMT is 1.0247 and you buy back the $100,000, you have a gross profit of EUR 220 ($225). The gross profit minus the spread cost, usually 5 pips which would be about $50, giving you a net profit of around $170.

It is important to note is simple to make and lose money quickly when margin trading forex. Some good advice to follow is to never trade with too low a deposit incase a position goes against you and you get cut off by your broker. To avoid this situation it is a good idea to set your own stop loss.

Forex Margin is simply the amount of money required by a forex broker from a forex trader, to open a trade or position in the forex market.

A simple example is, to margin trade 1% the broker will ask you to deposit $1000 in your account. By providing $1000 of your trading capital, the broker will allow you to trade up to $100,000 worth of currencies. Technically speaking you can leverage your trading account by 100 times.

Retail forex brokers quote currency pairs such as GBP/USD (i.e. GBP in terms of USD). If GBP/USD is trading at 1.5000 then it means that one British Pound is worth 1.5000 US Dollars. If you want to buy 10,000 Pounds it means that you have to sell 15,000 USD. Basically your margin required will be 1% of $15,000 which equals $150.00. This demonstrates with only a small amount of money you are able to buy a much larger amount of currencies.

What is a Contract for Difference?

Contracts for Difference (CFDs) offer you the ability to deal in the price movements of a wide range of financial instruments, such as stocks, without actually owning the underlying asset. Like traditional share dealing, the scope is for speculators to profit from the price moving in their favour, but CFDs give you the potential to profit from both rising and falling markets. In Australia it is becoming increasingly popular for traders and investors to use CFDs as part of their investment strategy.

Benefits of CFDs:

The ability to profit from both rising and falling prices.

Leverage/gearing; putting up only a fraction of the full contract value.

Low commissions costs across a range of markets.

Online trading platforms allowing a single account to deal in a wide range of markets.

What is Margin Trading?

Margin trading is the most powerful feature of CFDs. Margin trdaing allows you to trade an entire portfolio, without tying up lots of capital. For example if you place a deposit of $10,000 in your account, you can trade up to $100,000 worth of shares. This represents a leverage factor of 10:1.

Transactions on the FOREX market are fulfilled by dealers at major banks or FOREX brokerage companies. The FOREX market is a world wide market, it literally follows the sun around the world. This means the FOREX market is active 24 hours a day. Clients may place take-profit and stop-loss orders with brokers for overnight execution.

4 major currency pairs are usually used for investment purposes:

Euro against US dollar, EUR/USD

US dollar against Japanese yen, USD/JPY

British pound against US dollar, GBP/USD

US dollar against Swiss franc, USD/CHF.

Reasons to Trade FOREX?

A 24-hour market: You are able to take advantage of all profitable market conditions at any time of the day or night.

Highest liquidity: The FOREX market has an average trading volume of over $1.5 trillion per day and is the most liquid market in the world. That means that a trader can enter or exit the market at will in almost any market condition minimal execution barriers or risk and no daily trading limit.

Low transaction cost: The retail transaction cost (the bid/ask spread) is typically less than 0.1% (10 pips or points) under normal market conditions. At larger dealers, the spread could be less than 5 pips.

High leverage: A leverage ratio of up to 400 is typical compared to a leverage ratio of 2 (50% margin requirement) in equity markets.

Always a bull market: A trade in the FOREX market involves selling or buying one currency against another. A bull market or a bear market for a currency is defined in terms of the outlook for its relative value against other currencies. If the outlook is positive, we have a bull market in which a trader profits by buying the currency against other currencies. Conversely, if the outlook is pessimistic, we have a bull market for other currencies and a trader profits by selling the currency against other currencies. In either case, there is always a bull market trading opportunity.

No one can corner the market: The FOREX market is so large, with so many participants that no single entity, even a central bank, can control the market price.

Short-term, or day trading, is mostly played out by reading price and volume.

Understanding the price/volume relationship is critical if you’re to survive the pace of short-term, leveraged trading. The ability to read the course of sales and the market’s depth is essential.

Choose your “trading time frame” and understand it: who’s in control of your frame, where is the momentum, where’s your entry and exit within that time frame?

Trade the small, friendly trend until it ends. This will take discipline, courage and patience.

Learn to control your emotions when day trading. Total responsibility for all your own actions is an absolute in day trading professionally. Until a new trader can become detached from the emotional – fear/greed/money – they are doomed.

Once a trader’s mind becomes detached from the fear of loss and starts to focus on the game at hand, the natural flow of numbers coming from the markets becomes clearer.

Clearly choose clean entries and exits, based on an understanding of the market, such as volume, price, action and its momentum.