Forex Margin Trading – The Dangers Of Trading On The Margin

Why is gaining too much leverage through forex margin trading a dangerous thing?
If you have already read about the concept of leverage in forex by trading on the margin, you will no doubt understand that it can be a powerful tool. A typical margined account will offer you a 1% margin, therefore you simply deposit 1% of the total value of one’s trades (together with your broker lending you the other 99%).

Lets say your account deals in a large amount $100,000 each, in order to buy a lot at this point you only need to invest $1000 of your money in that trade (1%). Now this deal might seem like an amazing offer, and it does permit the ‘average joe’ to acquire a piece of the action without needing a few hundred thousand dollars to spare. However, there is one big caveat you shouldn’t overlook:
Trading on a margin of 1% means a fall of 1% of your trade will put you out of the game!
Forex margin trading lets you minimise your financial risk, but the flip side of the coin is that if the value of one’s trade dropped by the $1000 you put forward it would be automatically closed out by the broker. That is called a ‘margin call’.
As you can see, a little movement in the incorrect direction could easily wipe out your trade, and see your $1000 gone in a couple of seconds. If the trade moved enough in the right direction to cover the spread then you could make a good profit, but you would need to be absolutely certain in your prediction to create such a risky trade.
Forex margin trading on a 1% margin is risky business, but by getting the balance right between your level of risk and how heavily leveraged you account is you can gain an edge. This advantage may be the difference between success and failure.
Important: Gaining An Advantage in Forex Margin Trading is key to Your Sucess!
Learn more about forex trading strategies [] and margins, and know the pitfalls the brokers try to hide!

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