Understanding Margin, Spreads, Risk, Liquidity

It’s All About The Details

In order to become a Successful trader, Chief Trader Armando Martinez emphasizes  the intricacies of Forex Trading. These details, tend to be overlooked by many newbie traders,and are in fact much more significant and can directly effect ones performance.

The topics covered in today’s course are the following:

  • Lower Margins  – What this Means for YOU
  • Spreads – A Crucial Broker Question
  • The “Darkside” of Forex – Ways to Avoid it
  • Rollover – The Carry Trade
  • Forex vs Stocks, Futures & Commodities

Learning Goal: Understand Margin, Spreads, Risk, Rollover, Liquidity

Level: Beginner

Taking Advantage of the Benefits

There are many different advantages to trading FOREX over stocks or futures, such as:

  • Lower Margin – A FOREX trader can control a large amount of currency with only a small account deposit, just like when futures and stock speculation is done. Futures require a 5% margin and the margin required for FOREX is around 1%. In layman’s terms, in FOREX trading, a currency trader can control 5 times as much with his money as in futures trading and 50 times more than stock trading! There is much more profit in trading on margin, but you need to be fully aware of the very high risks as well. Be sure you understand the ins and outs of your margin account and that you have read the margin agreement between you and the broker. If you still have things you are not sure about, discuss these issues beforehand with your account representative. If you allow your account to fall below an amount set in your agreement, you could experience the partial or complete liquidation of your positions. It may be done before you even get a margin call, so be sure you review your margin balance regularly. Take advantage of stop-loss orders on each open position; this is a must in order to reduce risk and preserve valuable working capital. Before committing to a trade, you should have a predefined amount of money you are willing to risk. This is where professionals have a Structured Business Plan
  • Spreads -In the Forex market there is what we call a “Spread”. This is the difference between the asking price and the bidding price. You could think of this as a commission you pay your broker for allowing you to trade. For example you can choose to sell at 10 or buy at 12. Therefore the spread would be 2. Your spread can vary slightly between different Forex brokers.  When searching for a Forex broker, you should always compare the spreads.
  • Darkside” of Forex – FOREX is said to have guaranteed stops that can be utilized to limit risk. This is a myth. During a time of extreme volatility your stops in the Forex market can be missed just as in any other market. This is the equivalent of not being able to get out of a futures trading position as the price moves against you. There are times when you should and should not be trading the FOREX market and the FxST Trading System will teach the important times to be trading and also when to be sitting on the sidelines.
  • Rollover – This is a strategy in which a trader sells a certain currency with a relatively low interest rate and buys a different currency yielding a higher interest rate, aka the “Carry Trade”. Rollover usually occurs at 5PM EST. Remember in Forex we trade pairs, so we are always buying one currency and  selling another simultaneously. So if we buy AUD/USD, technically we are buying Australian dollar and selling the US dollar. If Australia has a higher interest rate than the US, your broker may pay your “Rollover” & vice versa.

Forex vs Stocks, Futures & Commodities

FOREX trading is a tremendous opportunity and far superior to stocks, futures and commodities trading. As is true with all trading, there are certainly risks involved. To reduce your risk, the services of a Broker are important and advised. This comprehensive guide will teach you exactly what is necessary to start achieving success in the FOREX market.

By now you probably have a good idea if this sounds like a business you would like to learn more about. If you are ready to get started creating your own successful Forex Trading Business today, this is the perfect Free Video Series for you to start with.