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Chapter 5, Part II. Intermediate Checkpoint. Page 3

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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    Some talk about the leverage

    As you understand – the currency trades in lots, just like an M&M’s candies – you can’t buy just single piece, only 1 pack or more. So the same is with currencies – you can trade pairs in lots. What is a standard lot by the way?

    Pipruit: 100 000 units of base currency.

    Commander in Pips: That’s right. Also, as we already know there are micro lots – 1 000 units and mini lots – 10 000 units exist. Furthermore, some brokers let trade to their customers with any lot that they want. If you love your grandma and her favorite year was 1958 then you even can trade with 1958 units – no problem. But when the number of units (i.e. lot size) is too small, then the results of trading are negligible and they are not worth that hard work that you will have to do to earn them. As you understand hard work absolutely does not depend on the lot size. It will be the same amount of work to analyze the marker and then to place a trade for 1 unit of currency or for 100 000 units.

    Also we’ve already talked about leverage that could be provided by FX broker that allows you to trade with much smaller amount of cash. This type of transaction is called margin trading. Let’s see if you remember anything on this topic that we’ve talked about before… Here is the next riddle:


    Task #3

    Let’s assume that your FX broker allows to trade not less than with one mini lot (10 000 units) and provide their clients with 1:50 leverage (2% margin). How much cash in USD do you have to deposit in your trading account to open a trade of 1 mini lot, say, on the GBP/USD, if the rate is 1.6200? How much will it be in terms of GBP?


    Pipruit: It looks simple – 1.62*10 000/50 = $324. In terms of GBP it will be – 324/1.62 = 200 GBP​

    Commander in Pips: That’s right. See – you can control a position of $16 200 with just under $350. This is a positive side to margin trading. Just remember that margin trading also has a negative side. We’ll get back to that later.
     
    #1 Sive Morten, Dec 14, 2013
    Lasted edited by : Feb 7, 2016
    grizzlybull, Nachoga and fran alvarez like this.
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