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Chapter 2, Part I. Why FOREX? Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 14, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Pipruit: But how can a trade be done with just $50?​

    Commander in Pips: In fact it could (but, as you will understand later it is not great idea to enter the market with just $50), because:

    3. There is no compulsory fixed standard lot on FOREX market. Although historically participants in the FOREX market use 100 000 units (for example US dollars) of currency as a standard lot, your broker may use any fraction of this lot, started from 0.01 part. Depending on your broker and trading account value you can use any lot size at your will (even 0.001 or smaller), or some fractions of single lot that are predefined by the broker. For example, your broker can limit the minimum lot fraction with no less than 0.1. But don’t be confused by these limitations, because brokers link the minimum lot size with client’s account value. It means that you will not be interested or need to trade with lower lot size if to your account assets are larger.

    Pipruit: But now, I can’t understand, how we can trade even 0.01 lot size, which is 1000 units, with only $50 of account assets.​

    Commander in Pips: It is possible due to the:

    4. Solid Leverage of the FOREX market. In fact, leverage is an additional money loan that your broker provides to you for financing your own positions without any charge. You can’t withdraw this money, and it automatically returns to broker as soon as you will close your trade. In general, the lower your trading account value the greater the leverage. If you trade with a micro account broker may even provide you with 500:1 leverage. What does it really mean? Let’s assume that you have $50 in your account account and broker provides you with 500:1 leverage. It means that you can trade with a bit less than $50*500 = $25000 or, other words 0.25 lot! Usually, the greater the trading account value, the lower the leverage. Big participants usually trade with no leverage at all (Large banks, for example). The most common leverage size starts from 100:1 and then gradually reduces. Recently, the USA lowered the maximum leverage for US brokers to 50:1.​
     
    #1 Sive Morten, Dec 14, 2013
    Lasted edited by : Feb 4, 2016
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