The beginner traders in the Forex Market do not understand the actual concept of leverage. If you have a capital of 10,000 USD and in case you trade on 1:50 margin, then you can only manage to control the capital up to 500,000 USD and in case 2 percent moves against you, the complete trading capital is lost. In case you are just a beginner, we suggest you not to use more than 1:20 margin unless you become very comfortable in the market and earn reasonable profit.
Entry to Forex Trading
Investing a capital at 1:20 margin means that in case you are trading an amount of 10,000 USD, you are controlling a capital of 200,000 USD. Consider that you are trading the currency pair are GBP/USD and you decide to enter the Foreign Exchange Market for a long term. This suggests that you are trading that the value of USD will decrease against the value of GBP.
In case you are trading in EUR/USD currency pair and the rate of this currency pair is 1.455 and in case you invest a capital of 5000 USD using the same margin of 1:20 leverages. Here you are exchanging 100,000 USD to Euros. As per the Foreign Exchange Market, if the current exchange rate EUR/USD is 1.455, you might earn a profit of 68,728 EUR.
If the Foreign Exchange Market goes in the same direction as the invested capital, the margin will be in the traders favor and even if the current rate of USD declines to one percent, there will be a twenty percent in the beginners trading capital. Therefore, if EUR/USD currency exchange rate moves from 1.455 to 1.469 the trader would be able to exchange 68,728 EUR again to 101,000 USD making a profit of 1000 USD for the investor. As the trader has invested a starting trading capital of 5000 USD, it will effectively increase the balance in your account up to twenty percent. However, if the Forex Market goes against the trade and the current rate of USD increase to 1% against the current rate of EUR in the market, the beginner’s bank account will be left with only 4000 USD.
Therefore, it is very important to set a goal in our mind finding an appropriate Forex Strategy through forex tutotial that can be compared in its profit potential against the most complicated and difficult trading system. At the same time, it is also very feasible to important to understand the Market.