Beware of Forex Trading Using Margins

Beware of Forex Trading Using Margins

Margin, margin and margin! if you have read our previous writings about forex trading and want to deal with this business then you really have to be careful because forex trading with margins is very high risk especially when you have to use leverage as an integral part of this business.

Actually the use of margins is not only there when running a forex trading business but when you run a stock trading business there are also margin facilities (bailouts) provided by brokers but the system is different.
Even though the forex trading business is high risk because there is margin and leverage but if we are able to apply forex trading management that is good and true and able to control emotions then we will be able to record profits consistently.

Let’s say that when we have a capital of $ 5,000 and take 100: 1 leverage, we will be able to buy a trade contract of $ 500,000 or its value 100 times greater than our capital. So that with this power we can increase the Return on Investment (ROI) .

And before we are also familiar with the term Margin Call which is a condition the broker will forcibly close all our transactions because the amount of Equity is smaller than the amount of Used Margin. And if we experience this condition (margin call) then we can be sure we are experiencing a loss.

So to avoid margin calls, there are a number of things we can do, including implementing risk management (stop loss), using leverage wisely, and opening transactions with the right amount.

In addition, you must also ask for the amount of margin needed to open a transaction to your broker, especially during the weekend or when important events can affect price movements in the market. Because the amount of this margin value (used margin) will affect the amount of your usable margin and will certainly affect the ability of your account to hold the position so as not to be exposed to margin calls.

Above is an example of a letter of notification to clients of brokers regarding an increase in the amount of margin when an important event will occur in Italy so we are advised to set the amount of usable margin.

To regulate usable margins, there are several things we can do, namely reducing the number of transactions and or increasing the amount of equity (capital).

In addition, do not forget to not risk more than 2% for each transaction so that we have the opportunity to make a profit on the next transaction.

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