In Forex, traders or investors using leverage to gain profit from the fluctuation of exchange rate between two different currencies. It allows traders or investors to control a larger asset with smaller down payment and loan the rest of the capital. The best example of demonstrating leverage is buying assets such as car or houses. A person might be able to own a BMW with a down payment of maybe $15,000.00 instead of $80,000.00; provided if the bank agrees with a reasonable offered leverage – hence this explains the definition of leverage.
After an investor has opened an account with the broker, he would be required of deciding his preferred leverage for his respective account. The usual provided leverage options would starts from 50:1, 100:1, 200:1 until 1000:1. If an investor / trader choose 100:1 as his preferred leverage, it means that his account would have the ability to trade up to $100,000 of currency with a margin of $1,000 (1%).
Although the ability to great profits by using leverage is substantial or possible, leverage would actually works as a double edge sword that might bring damage to the trader. For instance, if the trader traded mistakenly by traded a suppose-to-be rising currency while in actual the currency goes the opposite direction against the trader. The leverage would greatly amplify the potential losses. In order to prevent such catastrophic event, all traders are advised to choose a leverage range which is suitable for their maximum risk and must implement a mandatory trading style that includes the use of STOP LOSS and Limit Orders.
Whenever a trader is about to open a position on a specific pair of trading instrument, a certain portion of capital will be set aside margin deposit in order to maintain the opened position while the rest of the capital will remain in the “Free Margin” area ready to be utilized by the trader for more trading positions to be opened. Traders can keep track of their Used Margin and Free Margin in their Accounts Windows of the MetaTrader 4 Platform.
As the topic of Margin continues, Margin Call or MC can be describes as an event where a trader faced severe losses in their trading that put them on the verge of entering a negative balance in his trading account. This is where MC will occur in order to prevent the trader’s account from turning into negative balance and thus preventing the trader from losing all his capital. This is a very important safety features which prevent trader from greater risks as they made their trading with large leverage in a greatly fluctuate environment.
In actual situation, Margin Call or MC is an embedded safety feature that prevents traders from losing more of their deposited. If an account’s equity or the total value of account falls below the margin requirement of approximately 30% of the Used Margin, the system would automatically close all positions until the situation is under control in order to protect the trader from entering a negative balance.
Hedging is basically a way for a forex trader to be safe. It is a way for him or for her to protect him or herself from getting hurt with a big loss. Hedging is basically a plan like insurance. In insurance, People can take breathe freely because they know there is the way that they can reduce their loss with. Hedging is just like that plan. When you are in a business then there is always a chance that something bad would happen. Hedging works in those scenarios. If you want to make your business more secure then you can go for hedging.
Experts say that those who do not know the market procedures and up and downs should not go for hedging as it is a risky process. If you are a newbie in this zone and are trying to play with hedging without having adequate trading experience in forex then it is almost sure that you will face some narrow situation. That is the reason why everybody does not accept hedging in their area. We are different and we have this facility for you.
There are two styles of hedging which one may choose. One of them is simple forex hedging and the other one is complex forex hedging. It is tough to understand for new comers which one works like how.
Direct hedging means a way when even if you are allowed to go for a trade which only buys a currency pair at a time and then at the same time you can easily put up a trade which will sell that same pair. In this case the profit will be nil and also because of having both of the trades open, you can easily make more money without taking additional risk only if you can time the market rightly. Simply it means that you are trading in the opposite direction of your previous trade. So, it is very tough to control the timing and go for it. But if you can do it then it is sure that you will be benefited.
Complex hedging is banned by most of the brokers and there are valid reasons also behind their doing this.
When you have become forex trader, you can go for against a particular currency problem while you force to use two different currency pairs. You can see an example, if one could go along with BDT or USD long and USD or Euro short then in this case, it will not surely be the exact but one can be hedging one’s USD exposure through this way. This is what is called a complex hedging. There are huge risks in this method and that is why it is prohibited in most places. We want the success of each and every trader of us and that is why it is needed to make you understand everything so that you can easily shine.
Forex Market Hours
More Activity, More Possibilities
Alertness and Opportunity
Other forex trading hours to watch out for are the release times of government reports and official economic news. Governments issue timetables for when exactly these news releases take place, but they do not coordinate releases between the different countries.
It is thus worth finding out about the economic indicators published in the different major countries, as these coincide with the most active moments of forex trading. Such increased activity means bigger opportunities in currency prices, and sometimes orders are executed at prices that differ from those you expected.
As trader, you have two main options: either include the news periods in your forex trading hours, or decide to deliberately suspend trading during these period.