Buying vs Selling Example
For every currency pair, there are two prices referred to as the "Bid" or the selling price, and the "Ask" or the buying price. The difference between the two prices is called "the spread", or the cost of the trade. In the first example, the spread is 3 pips. For a standard 100K account, a pip on the EUR/USD currency pair is worth $10.
*Margin
Margin is a good faith deposit and the margin requirement allows a forex trader to hold a position much larger than the actual notional value.
In the event that funds in the online forex trading account fall below margin requirements, IKON GM, will close some or all open positions.
*Margin is a double-edged sword. Proper risk management must be enforced because this high degree of leverage can lead to large losses as well as gains.
Example of How Margin Works
In the example below, the forex investor buys in expectations of profiting from a rising exchange rate. Since the forex investor opened 1 lot of the EUR/USD, his margin requirement or Used Margin is 1000 EUR. Usable Margin is the funds available to open new positions or sustain trading losses. If the equity (the value of the account) falls below 50 percent of the Used Margin due to trading losses, IKON GM will automatically close all or some of the positions in the account at the current market price.
How does leverage work in the Forex market?
In Forex Trading, investors use leverage to profit from the fluctuations in exchange rates between two different countries. Leverage is a loan that is provided to an investor by the forex broker that is handling his or her online forex trading account. When an investor decides to invest in the Forex market, he or she must first open up a margin account with a forex broker. Usually, the amount of leverage provided is either 50:1, 100:1, depending on the forex broker and the size of the position the investor is trading. Standard trading is done on 100,000 units of currency, so for a trade of this size, the leverage provided is usually 50:1 or 100:1.
To trade $100,000 for example, with a margin of 1%, an investor will only have to deposit $1,000 into his or her margin account. The leverage provided on a trade like this is 100:1. Leverage of this size is significantly larger than the 2:1 leverage commonly provided on equities and the 15:1 leverage provided by the futures market.
Although the ability to earn significant profits by using leverage is substantial, leverage can also work against investors. For example, if the currency underlying one of your trades move in the opposite direction of what you believed would happen, leverage will greatly amplify the potential losses.
Trading Off-Exchange Foreign Exchange Currencies involve significant risk and may not be suitable for everyone. Please read our
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